MUST YOUNGSTOWN ROLL OVER AND DIE?
Must Youngstown roll over and die? How 'big steel' got to Jimmy Carter This could be "a very good year for the steel industry," Business Week predicted last January. With orders piling up and...
...The loan guarantee was rejected...
...They should lay to rest the issue of markets...
...But there has been intense pressure for the Government to permit "creative" solutions to steel's problems...
...Jenkins himself admits that if the project had been possible, it would have received "a much more comprehensive study...
...The new electric arc furnaces would increase the Youngstown plant's efficiency...
...Said James Smith, assistant to Lloyd McBride, the president of the United Steelworkers of America: "The workers were willing to give up real luxuries by looking at each site and making a new evaluation of just how many people it would take to do each job...
...The Government's action has not stopped those who have been working for this project...
...What is even more ironic is that the mass layoffs in the Youngstown area help create the "crisis" atmosphere...
...Bell claimed that the merger was "the only viable means for maintaining the Lykes steel-producing facilities and for saving jobs of those concerned...
...The crisis in steel knocked the Youngstown area flat, and it has not gotten back on its feet...
...In late 1977, President Carter set up an interagency task force to assist the steel industry and the communities affected by the shutdowns...
...The steel companies," Bob Brandwein explained, "would not like to see another 800,000 tons of capacity being built...
...Youngstown itself is an example of "greater understanding...
...He was right...
...As many steel analysts have shown, the Japanese have been outselling U.S...
...Whatever happens in the future, though, it is clear the coalition's work has already been successful in raising "the national level of consciousness about plant closings...
...The welfare program for the large steel producers does not end there...
...Said Ellen Robinson, a staff member of the Coalition, "We worked our asses off for a year, came up with all the figures, and then they just said no...
...This was substantially higher than the average price increases that domestic producers instituted at the same time...
...The coalition of religious leaders, union members, and others who had formulated the plan realized they had to put together sufficient evidence to overcome such doubts...
...And now the New Orleans firm, since taken over by another highflying conglomerate, LTV Corp., plans to shut down the rest of its steel-making facilities in Youngstown...
...As one union member put it, "the company would spend the money where it's made, instead of shipping it off to New Orleans...
...Only the chance to absorb more unemployment...
...Despite the plan's traditional relationship between management and labor, this concept does have a radical thrust...
...The Youngstown plan seemed a prime candidate for funding, even though the Government had some initial reservations about whether there would be a market for the reopened plant's product...
...Should the steel industry invest in modern facilities wherever it sees fit, or would modernization take place where steelworkers live...
...At a preliminary meeting, Alperovitz went on, Watson had referred to the $100 million limit, but had said that if a viable plan involving more money was created, additional funds could be put together...
...He added that if there had not been a $100 million ceiling, "negotiations would have continued between the Government and the coalition" to iron out the problems in the proposal...
...The Government's rejection contradicted the initial support it had given the plan...
...The- support from the union and from the financial community, however, did not seem to impress the Government...
...Despite such fears, most workers threw their support behind the proposal...
...The closer one looks, the more the evidence indicates that the refusal of the loan guarantee was not made on the basis of the feasibility of the plan...
...The merger normally would have brought an anti-trust suit against the two companies, since it combines the eighth largest steel company, Youngstown Sheet and Tube, owned by Lykes, with the seventh largest company, Jones and Laughlin, owned by LTV...
...Steel, told his stockholders in March 1978 that the corporation would not direct any more funds to its steel operations until the Government acted to change the investment climate for steel...
...In September 1977, Youngstown Sheet and Tube Co., a subsidiary of the New Orleans-based Lykes Corp., laid off 4,000 workers in one of history's largest steel shutdowns...
...But the company would be accountable to the community, not to distant investors...
...The EDA, then, stopped short of a full investigation into the merits of the plan because of the $100 million limit...
...As the steel industry journal Iron Age stated, "More than any other event, the shutdown in Youngstown brought home to the Carter Administration the seriousness of the whole steel industry's problems...
...The old open-hearth blast furnaces would be replaced with more efficient electric arc furnaces...
...Rather, it seems that the decision was not only made before the proposal received serious consideration but that it was also based on a clear political choice...
...An even more damaging blow to Youngstown came from Washington last March...
...By such means the firm would be encouraged to keep its profits — and its jobs — in Youngstown...
...But the steel industry's objections have not been limited to ideological grounds...
...Another hurdle had been passed...
...Well, now we see that if we want something, we have to do it ourselves...
...The coalition commissioned Paul Marshall of Putnam, Hayes, and Bartlett, Inc., a nationally known steel analyst, to do a market study...
...It could be a windfall," he commented...
...A union-management group concluded that 5 to 6 per cent of labor costs could be saved this way...
...From the outset, the coalition had planned for something more than $100 million, but it was still encouraged to apply for funds...
...around are to be found in the relationship between Big Steel and the Carter Administration...
...Lewis Foy, chairman of Bethlehem Steel, the second-largest steel producer, agrees: "Government has recognized that a viable steel industry is vital to the health of this country...
...It has generated too much energy to be stopped by one short-sighted decision," says Alperovitz...
...That was an impressive breakthrough, especially since the international officers of the union, including McBride, had been cool to the plan at the beginning...
...Edgar Speer, the former chairman of U.S...
...Last January the Administration raised the trigger-price by 7 per cent...
...But until the Lykes case, the failing-business doctrine was reserved only for those cases where the company was on the brink of bankruptcy...
...As for labor costs, the coalition found the steelworkers union ready to cooperate...
...Edgar Speer of U.S...
...Now they were willing to go to bat for the Youngstown plan at the White House...
...It has shown working people that they must fight if their jobs are threatened...
...Anthony Grassi, a vice president of First Boston Corp., the company which helped put the merger together, summed it up well: "In 1974 you just couldn't have argued that a merger was necessary to keep Youngstown Sheet and Tube afloat...
...The reasons for the turnThis report was prepared by Red Cent Collective, a group of socialist economists in Amherst, Massachusetts...
...industry's objections have not been limited to ideological grounds' as stock in the company...
...It's true, explained Bernie Jenkins, public relations official for the Department of Commerce's Economic Development Administration (EDA), that the agency found that "at this point" the proposal did not meet the marketing, managerial, and financial requirements of the loan guarantee program...
...What is ironic and painful about this affair is that despite Bell's claim the merger did not save jobs in the Youngstown area...
...Other handouts include legislation to allow acceleration in the industry's depreciation allowances, tax breaks for investments in anti- pollution equipment, and "greater understanding" in Justice Department reviews of prospective mergers...
...Steel has denounced the project as "nothing short of a communist takeover...
...Ed Mann of the steelworkers' union puts it this way, "Workers have always been told not to get involved, that someone will take care of them...
...Steel itself has several aging plants on the verge of being shut down...
...Even Business Week admitted that Lykes was not "in bad enough shape" to warrant the use of this defense...
...In June 1978, he overruled his own staff and approved the merger, citing the "failing-business" doctrine...
...They pointed to the Government's recent agreement to give Wheeling-Pittsburgh, the ninth-largest steel company, a $140 million loan guarantee to modernize its steel-making capacity...
...The plan had called for creation of a corporation to buy one of Youngstown Sheet and Tube's closed plants, the Campbell works, and modernize it with the help of Federal loan guarantees and other grants...
...The numbers were solid," said Bob Brandwein, who participated in the feasibility study...
...Since they were both strong in the same product lines, the merger meant substantial market concentration...
...Gar Alperovitz, co-director of the National Center for Economic Alternatives, said rejection on such grounds was "in direct conflict with what they told us last October...
...The major obstacle for the Youngstown coalition is that the dominant steel companies have been opposed to its work...
...He found indications of a strong market for the steel to be produced at the Campbell works...
...It questions who should control decisions...
...But there was another problem: A small plant just isn't supposed to break into a monopolized industry...
...The trigger-price system is one example of the improved relationship...
...Some steelworkers had expressed concern that such a plan could lead to the undermining of working conditions...
...companies because they can produce steel more cheaply with their lower labor costs and more efficient plants...
...He concluded it would be "no problem" to sell 800,000 tons, the amount necessary to ensure a sufficient return on investment...
...The real problem, it turned out, was not the economic feasibility of the plan, but the fact that it exceeded the $100 million limit imposed by the White House on a project for Youngstown...
...Voting stock would be sold to the workers and other residents of the Youngstown area, and 40 per cent of the board of directors would be elected by the workers...
...The Carter Administration announced it would not grant a needed $245 million in Federal loan guarantees for the only plan coming out of Youngstown that has attempted to deal with the massive layoffs — a worker-community takeover of an abandoned steel mill...
...The union was also willing to take a cut in other benefits, including an agreement to receive $1.04 per-hour incentive pay '. . .The...
...Other questions had been raised about the relations between management and workers in the new shop...
...Industry officials made it clear that a viable steel industry was contingent upon the Government having a "greater understanding" of the industry's problems...
...Jack Watson, the White House representative on the interagency task force, sent word last March that "after extensive research" the Government found the plan "underfinanced" and "unduly optimistic" about the potential market, the availability of funds, and the potential savings in labor costs...
...The corporate executives are also afraid that the reopening of the Campbell works would set an example for other communities, especially since plant closing and layoffs are not yet a thing of the past for the steel industry...
...The coalition and its supporters are asking whether an old steel community should just roll over and die when a corporation decides that more substantial profits can be made elsewhere...
...As one former antitrust official commented, this decision is "definitely a softening of the failing-business concept...
...Backers had hoped such improvements would lead to the re-creation of 3,500 jobs by 1981...
...And what has Youngstown itself received for it...
...This is no idle fear in an occupation where speed-up by management is often the underlying cause of accidents...
...But in the present crisis atmosphere, he contended, the combination could be defended as being "in the nation's interest...
...With orders piling up and imported steel losing ground through the first half of 1979, the prediction seems right on target: Steel profits are soaring — quite a turnaround for an industry that in 1977 was facing its worst crisis in more than twenty years...
...Our documentation was not taken seriously," Bob Brand-wein said...
...All told, the group calculated that close to 20 per cent could be saved in the cost of labor to the new plant...
...This choice meant helping the large steel corporations at the expense of the needs of the steel communities...
...Others complained that Watson's criticisms had come only at the last minute...
...The result: another 1,200 jobs lost...
...The warning was not lost on the Carter Administration...
...Many see the "improved" relationship between Washington and the steel companies as a main element in the recent profit boom of the industry...
...The merger between Lykes and LTV illustrates how far the Justice Department will bend its rules for the steel industry...
...Because of the severity of the layoffs and the response of the residents of the Youngstown area, he gave special priority to the Mahoning Valley...
...Nevertheless, the major steel buyers like to buy from many different mills as a hedge against potential shortages, so Bernt Rathaus, a former vice president of U.S...
...No wonder some observers have used the term "profitability umbrella" to describe the trigger-price system...
...Despite worker and community ownership, Community Steel, Inc., would maintain traditional management practices, including its relations with organized labor...
...Steel, believed the outlook for a new small steel mill was excellent A key problem for the reopened Campbell works would be productivity...
...A prime candidate is the Ohio works of Youngstown...
...Ed Mann, president of Steelworkers Local 1462, summed up the reason: "This is a good, legitimate plan for saving jobs in the Valley...
...A major investment banking firm, Warburgh, Paribas, and Becker, Inc., endorsed the financing of the project...
...It seems they didn't have much trouble finding them for Wheeling-Pittsburgh...
...When this system was first proposed in 1977, Charles Bradford, steel analyst for Merrill-Lynch, saw that it could greatly improve the profits of the industry over the short term...
...But this should be no surprise to students of the steel industry...
...In fact, 1,200 more jobs will be lost because of the merger, as LTV has decided to close down the rest of the Lykes steel mills in Youngstown by the end of the year, labeling them "unprofitable...
...Supporters wondered whether Youngstown had been given a fair shake...
...Instituted to help domestic companies in the fight against the inflow of foreign steel, the system sets a price below which imported steel cannot enter the country without being investigated by the Treasury Department for illegal dumping...
...The Carter Administration has been listening closely to the needs of big steel...
...The same cannot be said for Youngstown, Ohio...
...The letter from Watson left all those who had worked on the project in a state of shock...
...At a time when the large steel producers are trying to get rid of excess capacity to bolster profits, what they don't want to see is another competitor entering the market...
...And such a solution was found by Attorney General Griffin Bell...
Vol. 43 • October 1979 • No. 10
