CAN STEEL BE SAVED?
Bensman, David & Lynch, Roberta
A sense of the inevitable has clouded all discussions of the industrial crisis confronting our nation. Policy analysts of divergent opinions have found common ground in the view that the steel...
...From 1980 to 1983 the dollar's value increased 82 percent against the French franc, 78 percent against the Italian lira, and 41 percent against the West German mark...
...mills...
...Those who are writing off steel and other manufacturing industries should think hard about what sort of nation America is becoming...
...and Armco...
...Protectionism is a dirty word in American discourse...
...Since 1965, America's investment in public infrastructure has dropped 50 percent...
...Since political leaders hold fast to the idea that the steel industry must compete in a free marketplace, they propose only limited intervention...
...But that was only one part of the story...
...The second is that a sound manufacturing sector is no longer essential to the future of the United States...
...South Korean and Brazilian mills do have modern technology, but their productivity still lags far behind that of U.S...
...American corporations have a long and sorry history of finding ways to enjoy the benefits of public support while escaping public accountability...
...Such a massive public investment program is unlikely to be prompted by the decline of our basic industry...
...But it is only worth undertaking such an uphill battle if it is done with the recognition that this crisis was created by an arrogant industry bloated with power...
...Second, it must have as its centerpiece not just a program of centralized planning of public investment in steel, but an insistence on corporate accountability...
...Pension funds are one available source of public investment...
...They would have a choice of paying the tax or raising their workers' wages, thereby generating domestic demand...
...Currently, federal defense spending harms American industry rather than helping it...
...Others hold that unless the steel industry can stand on its own, it does not "deserve" to survive...
...They draw people off the farms and make for slums in the cities, yet don't seem to generate the kind of self-sustaining economic growth that creates steadily improving living standards...
...The decline in steel sales was caused partly by a rise in imports, to more than 25 percent of the U.S...
...Saving steel is vital to our national interest...
...Most Americans are not likely to welcome permanent import restraints...
...Then the locus of struggle shifted to the Mononghahela Valley where there have been pitched political battles over issues of worker ownership, eminent domain, and corporate responsibility...
...This means that an American mill producing steel 25 percent cheaper than a German mill in 1980 might very well have lost orders to that rival in 1984, even if the domestic facility were more efficient...
...Saving jobs is vital to our economic well-being...
...Steel with incentives to shut its mills so that it could take over Marathon Oil...
...Once these manufacturing jobs are lost, they will not be replaced by decent paying jobs in the high tech and service sectors...
...Cost-plus Pentagon contracts have diverted manufacturers from efficient practices, thereby rendering them unable to compete with foreign producers...
...Such suspicions are entirely well-founded...
...As a result, the union has begun to show a greater emphasis on technological improvements in its internal communications and its external public relations, as well as a greater willingness to ally itself with worker/community groups arguing for public or worker ownership...
...During the past decade, multinational corporations have built modern manufacturing plants in the poor regions of the world...
...Japan's protected steel and auto industries have outstripped our own...
...When they got tax breaks in 1981, they used their windfalls to diversify, not modernize: why give them more money now...
...In most of the Third World, severe political repression enables export-oriented producers to keep workers' wages so low that they can never hope to buy the things they produce...
...0 95 thorough going rebuilding program would generate demand for more than 10 million tons of steel per year, according to the Midwest Center for Labor Research...
...The temporary economic problems of the early 1980s made it impossible for U.S...
...But protection will have to extend beyond the steel industry...
...By doing so, we would also strengthen the entire durable goods manufacturing sector, for which cheap, high-quality steel is essential...
...Most see its demise as intimately linked with the decline of our entire manufacturing sector: the death of smokestack industries...
...The steel companies themselves, blinded by their antipathy to government intervention, are not likely to advocate such a comprehensive program...
...There are more assembly and data entry jobs in high tech, but these are highly routinized, and subject to transfer to off-shore low-wage havens...
...markets with products contabling a great proportion of steel...
...indeed, the Building Trades Department of the AFL-CIO already has developed a program to funnel pension funds into the mortgage market to stimulate construction activity...
...Deregulation" was the name of the game...
...In this Darwinian economic model, the fittest would emerge, trim and tough, from the rigors of economic competition...
...Whether such a loose-knit and geographically spotty confederation can articulate and press for major national policy shifts is difficult to predict...
...and the gains to society were hard to fathom...
...manufacturers: low wage rates...
...A genuine reform would eliminate the tax incentives for unfriendly mergers, conglomerate takeovers of unrelated businesses, and plant shutdowns...
...The military budget is a second potential source of funds for leverage on private capital...
...In the new system of what Seymour Melman has termed "profits without production," financial expertise seems more important than production...
...First, if such a movement is to succeed, it cannot focus only on steel, but must have a base in and a program for the manufacturing sector as a whole...
...Wolfgang Hager, economic consultant to the Common Market, estimates that 75 percent of the free world's trade is subject to quotas, export subsidies, barter arrangements, and other government restrictions...
...nomic policies...
...But if this program were not implemented in toto, the steel companies would need direct federal subsidies...
...This would help U.S...
...The U.S...
...voluntarily,' the U.S...
...Unfortunately, service workers earned less than two-thirds the wage levels of production workers...
...The example of Great Britain's nationalized and protected steel industry—whose losses were subsidized for thirty years, with the mills becoming more and more backward—is what we think of first...
...Encouraging the export of Third-World manufactured goods to the U.S...
...If to this we add America's deteriorated local roads, railroad beds, and urban mass transit systems, we end up with even larger shortfalls...
...But several important elements have been taking shape in recent years, the most vital being the response from steel communities and steelworkers...
...BOTH PREMISES ARE FALSE...
...If U.S...
...It is power, after all, that makes the wheels go round...
...And if we instituted trade restraints when the dollar was overvalued, the price disparities between domestic and foreign steel would eventually topple the import barriers...
...Demand for American steel fell from 100 million tons shipped in 1979 to only 74 million tons in 1984, a 26 percent decline...
...American politics is not governed by some benign intelligence that analyzes critical problems and then seeks to address them...
...Policy analysts of divergent opinions have found common ground in the view that the steel industry cannot and should not be saved...
...But tax reform without reform of our credit markets is only half a solution...
...Even the United States, bastion of free trade ideology, manages trade in many economic sectors...
...A program to revive steel would require large public expenditures and substantial change in ecoThis article is adapted from Rusted Dreams: Hard Times in a Steel Community, to be published by McGraw-Hill Books in February 1987...
...The result is enormous overcapacity, and competitive pressure to cut taxes and to lower wages...
...As a result, they cost the government a lot of money, but don't enable U.S...
...Investment in Modernizing Steel INCREASED DEMAND MR AMERICAN STEEL must be linked to a program to make sure that the steel companies modernize...
...If all these parts of a comprehensive steel program were implemented, the steel industry might be able to make it on its own...
...The banking revolution and the rise of paper entrepreneurialism should have alerted Federal officials to the need for increased supervision of the banking system, but the opposite occurred...
...The Federal Reserve Board's move against "junk bond" financing of hostile takeovers is a lonely exception...
...lost almost six million tons of steel exports in the years 1970-83 because of the overvalued dollar and slumping Third World economic growth...
...Robert Kuttner notes that, "at the same time that our government pressures Japanese automakers to restrict exports to the U.S...
...Only coordinated action to ensure high levels of steel consumption would minimize the program's costs and maximize its effectiveness...
...The current tax overhaul leaves in place many of these incentives...
...Decaying roads, bridges, and railroad tracks increase transportation costs and energy consumption and decrease productivity...
...THE SHARP DECLINE IN DEMAND for American .steel during the years 1979-84 was partly the result of the strong dollar...
...That sum could be used to rebuild basic industry and infrastructure and at the same time leverage greater sums of private capital...
...But it doesn't have to be that way...
...steelmakers to become world class...
...steelmakers to compete, thus seriously exaggerating the extent or effects of the industry's backwardness...
...The private capital markets use this huge pool of public capital to finance corporate takeovers and other forms of "profits without production...
...If unionized steelworkers could raise their wages from near-poverty to decent levels, why not service workers...
...A Is It Worth the Trouble...
...Q. Why undertake the herculean task of saving America's steel industry...
...In the 1960s, banks became aggressive buyers and sellers of money...
...Looking to the future, the Bureau of Labor Statistics predicts that of the ten occupations expected to experience most rapid job growth, seven are in the low-skilled service sector, including nurse's aide, security guard, orderly, sales clerk, and food worker...
...Without a rebound, domestic steelmakers will have no incentive to modernize...
...Steel-containing imports reduced the demand for American steel by 13.7 million tons per year in 1985, according to a study by Locker/ Abrecht Associates...
...Such a strategy could shift billions of dollars of private funds into modernization projects...
...Once highly conventional in its tactics and skittish about "radical elements" and ideas, the USWA has gradually realized that it must fight with every weapon at hand...
...700 billion of America's capital lies in pension funds...
...should enact an import tax based on the differential between what American workers need to live decently and what Third World workers are paid...
...A. Steel is an integral part of our industrial economy, an essential component in manufactured products...
...Their programs attack one aspect of the industry's problems without addressing the others...
...Tax code preferences have other bizarre consequences: they provided U.S...
...AND R.L...
...At the same time that our government limits competition from abroad, it must also increase domestic demand...
...The dollar's new strength had a clear effect on U.S...
...Tens of thousands of engineers are taken out of civilian employment to work on military production...
...Frenzied buying and selling of new forms of paper drove up interest rates, further increasing the cost of industrial modernization...
...Furthermore, steelmakers are key customers for machine tool and engineering companies...
...Yet the reality is that "free trade" hardly exists anywhere in the world today...
...To STRENGTHEN THE INCENTIVE for private capital to modernize industry, the federal government should use public investment as a lever...
...What is at stake is not simply steel but the entire industrial economy, and that means millions of decent-paying jobs...
...Machine guns and police spies provide the foundation of the "labor cost advantage" that is eliminating the jobs of steelworkers in Southeast Chicago...
...In October 1983, Clifford Garvin of Exxon and Lane Kirkland of the AFLCIO released a report estimating that in the years 1983-1995 the cost of rebuilding America's highways and bridges, urban water supplies and wastewater treatment facilities would exceed planned spending by $8.5 billion to $10.8 billion annually...
...The transfer of billions of dollars from Western consumers to OPEC accelerated the banking revolution by creating a huge pool of highly mobile capital available for investment in high-yield, short-term instruments...
...National spending on research and development is skewed to defense...
...According to a 96 study by the American Iron and Steel Institute, $34 billion annually would be required in the absence of a comprehensive program...
...And the future prosperity of the nation will be endangered if we allow our industrial strength to wither...
...The prosperity of the American auto industry in 1983-4 was based on Japan's voluntary agreement to limit exports to this country...
...study: "German labor compensation costs have moved from about 25 percent above U.S...
...A SECOND PART OF THIS UNFOLDING COALITION has been the United Steelworkers union (USWA...
...It began half a decade ago, with the attempt to organize a worker/community buyout of the shuttered LTV steel mill in Youngstown, Ohio...
...If America initiated an infrastructure rebuilding program without enforcing trade restraints, the orders generated by the program would be filled by foreign steelmakers...
...The difference can be seen in these statistics: American mills use 3.6 man hours to make a ton of hot rolled band steel, while Korean mills need 5.5 hours and Brazilian mills 5.9...
...manufacturing industries are to survive, the federal government will have to give priority to keeping the dollar stable and realistically aligned with currencies of our chief trading partners...
...It is possible and necessary to revitalize America's steel industry...
...Some believe that no matter what America does, it can no longer compete as an industrial power against the low-wage countries of the Third World...
...93 A comprehensive program should bring down the value of the dollar, restrict imports, rebuild America's aging physical facilities, support research in product innovation, and transfer capital spending from military to domestic uses...
...Moreover, this entire program cannot be viewed apart from political realities...
...A third part of the story was declining exports...
...tax code gives Ford tax incentives to shift production from Detroit to the Mexican border...
...steelworkers, and of dubious benefit to the poor of the Third World...
...But pension fund assets could be used to create jobs and modernize industry...
...their search for depositors drove up interest rates— and the steel companies had to pay more to borrow the money needed for modernization...
...Most Americans don't want their tax dollars spent subsidizing firms like U.S.X...
...costs in 1982...
...If America cut back its military budget by just 10 percent, the savings would reach nearly $30 billion per year...
...It would not make much sense to exclude foreign steel if we allowed foreign manufacturers to flood U.S...
...Though we cannot count on high-tech employment to replace lost industrial jobs, the service sector is a different story...
...steelworkers one way or the other, and might give workers in the developing world a shot at jobs that are not completely dependent on the vicissitudes of America's economy...
...But all the recent federal steel programs are doomed to failure because they are piecemeal responses to crises of the moment...
...But America's sins against free trade are minor compared to those of our trade partners...
...A revitalized steel industry must be characterized not only by greater efficiency, but by a higher regard for the public interest...
...EVEN IF THE DOLLAR STABILIZES at realistic levels, the government will probably have to impose strong trade restraints to ensure that the demand for American steel is sufficient to induce domestic producers to modernize...
...When overseas sales of Caterpillar tractors or Harvester trucks decline, so does demand for American steel...
...Despite all the hype about high tech, this sector employs surprisingly few people with specialized skills or advanced educations...
...competitiveness, according to a Data Resource Inc...
...STEELWORKERS without making the workers of the Third World carry the burden, the U.S...
...The collapse of American steel would leave other domestic producers dependent on foreign suppliers—not of a raw material, but of a capital-intensive, manufactured good...
...there's no reason why a protected American steel industry couldn't be modern and efficient too...
...The reason is primarily that American steelworkers are more experienced and knowledgeable in the art of steelmaking...
...Equally important was the sharp rise in imports of cars, tractors, subway cars, buses, machine tools, etc...
...One of the most dramatic opportunities to expand demand for steel would be a program to rebuild our infrastructure...
...in the 1970s about 90 percent of the new jobs were of this type...
...In recent years, America's financiers and corporate executives have developed means of making profits largely unrelated to social purposes...
...Now that these rivals have combined modern technology with low labor costs, the argument goes, there's no way U.S...
...costs in 1980 to about 20 percent below U.S...
...The taxes collected could be used for two purposes—to modernize American steel mills and to fund Third World development projects...
...To do so would leave American steel mills without markets...
...Some Americans who accept the necessity of protecting our industries from competition by subsidized Japanese or European producers believe that nothing can or should be done about competition from countries like Korea, Mexico, or Brazil...
...But isn't protectionism unfair to the poor workers of the Third World...
...In the meantime, new forms of speculation appeared every month...
...SUCH THINKING RESTS ON QUESTIONABLE assumptions...
...To PROTECT U.S...
...manufacturers can compete with them...
...Why not get on with the task of building up America's high-tech sector, so that there will be new, decent-paying jobs for displaced steelworkers...
...Church groups have also helped to bring strength to this burgeoning coalition...
...Congress and the Federal Reserve have the power to discourage bank financing of hostile takeovers, excessive foreign investment, and commodity speculation, but they fail to exercise it...
...Third-World steelmakers do have one important advantage over U.S...
...This would provide an incentive for countries like South 94 Korea to develop home markets...
...The potential coalition for such change remains inchoate...
...D.B...
...We instinctively believe they will foster inefficiency and will cost consumers billions...
...Fourth, local elected officials have been forced to respond to these forces and have become, however shakily or involuntarily, allies in the search for solutions...
...Public investment in steel should only be granted in exchange for corporate commitments to modernize old facilities or build new ones...
...There is something to this argument, but there's also a political problem: if the highly organized manufacturing sector continues to decline, labor won't be strong enough to overcome employer resistance to unionization in health care and sales...
...If the steel industry is to survive as more than a shell of its former self, there is only one solution: a comprehensive strategy that coordinates a series of remedial programs...
...The Demand Side A comprehensive program for the steel industry should begin with the demand side...
...There is evidence that export-platforms like Korea's steel mills and Mexico's auto parts plants, financed by the International Monetary Fund and the World Bank, are not unmixed blessings for their local economies...
...Two .things are certain, however...
...market in 1984...
...Government leaders have made a number of half-hearted attempts to save the steel industry...
...This question is more complicated than it seems...
...Pittsburgh's Mayor Richard Caliguiri has been required to address such previously unimaginable issues as the public takeover of a steel mill...
...The growth of Third-World industry has made the need for protection more urgent...
...If such an industrial policy is to be truly democratic, then the terms of the bargain—how much public investment in exchange for how much modernization— should be determined by a process with widespread public participation...
...Chicago Mayor Harold Washington established a Steel Task Force that has developed a major report on methods to revitalize the region's steel industry...
...Stimulating investment in steel will require governmental action because the American economy discourages long-term investment in manufacturing industry...
...Underlying these views are two unexamined premises...
...One might argue that labor should make its stand in the services industry, instead of futilely trying to preserve the dying manufacturing sector...
...may be a way of helping to ease the international debt crisis, but it's disastrous for U.S...
...A program to protect steel only makes sense as part of a larger policy to protect American manufacturing...
...The first is that the economic environment of the early 1980s—the strong dollar, high interest rates, huge budget deficits, and surging imports—provided a fair test of the viability of the steel industry...
...Government tax policies and a revolution in banking practices have encouraged a corporate flight from productive domestic investment...
...At the same time, governments around the globe have been promoting basic manufacturing industries like steel, auto, and electronics...
...Steel's decline would weaken these industries, which are essential for all manufacturing...
...If steel goes, it will hasten the downfall of producers of automobiles and trucks, machine tools and consumer appliances, agricultural implements and construction equipment...
...Pressure must come from other places...
...If America's manufacturing sector continues to decline, what kind of future can domestic high-tech firms anticipate...
...Finally, if public agencies invest in the steel industry, they should be given equity stakes, so as to share in the steelmakers' profits...
...Furthermore, steel mills and auto plants are major customers for computer makers and robot manufacturers...
...And even a Republican mayor, George Voinovich of Cleveland, has called for a public jobs program to provide work for the unemployed...
Vol. 34 • January 1987 • No. 1
