In the loop: If at first you don't fail, try, try again

April 1, 2001
Larry Berardinis

Iron, manganese, and carbon in the right proportions make steel. And for more than 70 years, no one on the planet could make it like the United States. At one point, American steelmakers poured out more than half the world’s steel. Now they produce just over 10%, and even that may be in jeopardy.

The road to the bottom is as steep a grade as you’ll find in crash economics. So dominant was this industry that in WWII many of the weapons used against our soldiers contained U.S. steel. Today things are different. Nobody seems to want our steel, not even us. Based on what’s in the news lately, it would be easier to smuggle military secrets from a government lab than to drop off a load of our hot-rolled coils or bar stock on foreign soil.

And this brings into question a critical issue facing our nation: Should we bail out the steel industry once more or let it crumble under the weight of its own ineptitude?

Steelmakers are begging for government intervention. They claim they are victims of unfair trade practices. As they see it, the “fair” thing is to calibrate global steel prices to a level fixed by the cost of making it in the U.S. — at a small profit, of course. What they seem to be forgetting, however, are the years of mismanagement, labor manipulation, and gross neglect for the future that have made their industry vulnerable in the first place.

Had they played their cards right, American steelmakers would be in position today to simply buy up, or buy off, their competition. But back when they were on top, steel producers became nearsighted. They happily acquiesced to the low standards set by the aging, labor-troubled mills across the river or those on the other side of town. They didn’t see global competition coming until it was too late.

I worked for one of the mills in the 1970s as an engineering intern. I saw the waste and inefficiency first hand. Something as simple as fixing a leaky valve, for instance, could take a team of engineers a week to write the work order, after which the labor deliberation process begins to determine which specialist from which group gets to apply the wrench.

Thankfully the Clinton administration didn’t give in to the demands of Big Steel. Nor will the Bush administration, I predict. Anyone with an MBA knows that it’s not the making of steel that drives our economy, but the consumption of steel — using it to create products that sell here and abroad. Artificially jacking up steel prices at home will only take our manufacturers out of the global race.

It’s unfortunate that people will lose jobs if the mills fold. But, even more jobs would be lost if steelmakers get their way, which is still a possibility.

Their hope lies in a growing number of state and local officials who, like moths to the flame, are swarming in to save the day. As if on cue — with the highly publicized bankruptcy filings during the administrative changeover — an odd assortment of environmentalists and free-market proponents are opening their hearts and our checkbooks to bail out one of the most inefficient and filthiest industries around. Meanwhile, machine builders, energy makers, software companies, and the semiconductor and aerospace industries are left to tough it out on their own; the penalty of doing well I suppose.

The cash handouts, at least, are explainable. Politicians have been known to help their friends (bankers, lawyers, insurance firms, and other big contributors) when they make a bad business decision. In this case, after the creditors get their welfare checks, I suspect most of the politicians will disappear and nature will take its course.

Then, the industry that lost its will to compete will be allowed to die. The world will breathe a sigh of relief, and we can all get on with our business.

I suppose the mills will be sold to foreign interests, probably with the help of the same politicians who tried to save them. Top-level executives will get their golden parachutes; the laborers will be interviewed on the nightly news as they walk out to the parking lots for the last time.

Next we’ll see the great disassembly. With oxygen torches blazing, demolition crews will carve up the blast furnaces, ladles, roughing stands and vessels, and pack them up for shipping. Finally American steel will once again be welcomed on foreign shores.

Don’t feel sorry for steelmakers, though. They have no more loyalty to the workers than consumer electronics companies had in the 1960s, or carmakers in the 1970s. They’d move in a heartbeat, but it’s not easy to transplant an entire steel operation. A steel mill is part of the land. And it’s time to let this tired land go to seed.

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