Looking back, 1957 was an apogee for the United States steel industry. American companies made almost 40 percent of the world’s steel, and they were reaping good profits. Bethlehem Steel in particular felt flush: thanks to its bonus program, seven of the top ten highest-paid United States business executives in 1958 were Bethlehem men. Labor was also doing well compared to its past. Unions bargained with plants producing 95 percent of America’s steel. Wages were thus fairly standardized across the industry. Hourly rates had been rising steadily since the end of the war; steelworkers were entering the middle class, and health care and pensions were giving them lives that were not only longer and healthier but also more predictable. To be sure, there were strikes, layoffs, and heated negotiation sessions (about every three years since the end of the war) that caused anxiety and sometimes disruption, but steelworkers’ lots had vastly improved since the 1920s and 1930s. The nation respected steel—the defense of the country depended on it and so many consumer products contained it—and the future looked rosy.
Then came the global recession of 1957–1958. Mainly this was a normal business-cycle recession, but its sting was fierce, and the United States suffered the worst setback since the end of World War II. Gross domestic product (GDP) shrank almost 4 percent. Auto sales plunged 31 percent from the year previous. Steel orders dropped sharply.
Cruelly, consumer prices held steady, so the United Steelworkers made a point of bargaining for increased wages—their goal was to make American steelworkers the highest-paid industrial workers in the world. As a bargaining point, the USW noted the fat profits of the mid-1950s. For their part, the steel companies aimed to eliminate Section 2(b) of previous contracts, which governed how many men worked at a particular task, in effect pegging numbers to past practice and preventing reduction unless the company introduced either a new process or new equipment. Rules also kept men in one work discipline (say, crane operator) from working in another discipline (say, motor repair) and prevented management from performing any task delegated to union workers. Naturally, absurdities cropped up. At a Bethlehem plant one windy day, a foreman picked up a sign that had blown to the ground from a building wall. He carried it to the tool room for someone to remount. A laborer filed a union grievance for four hours’ pay because the foreman had been doing the work of a laborer—and got it.
The rank and file believed 2(b) protected workers from the crushing labor of early in the century, but it also tended to freeze practices to methods and crew sizes ripe for improvement. The companies complained of featherbedding—padding the ranks with more workers than were needed—while the unions countered that they had to maintain large crews for when good times returned lest the men be overworked. When the sides squared off in negotiations, the union demanded increased wages and the preservation of 2(b), while the companies were saying no to wage increases unless major changes could be made to 2(b).
Negotiations proved fruitless, and so in July 1959, steel plants all across the nation closed as five hundred thousand steelworkers struck. Week followed week and month followed month. The steelworkers struggled to feed their families, and the steel companies fretted over lost sales; the auto companies complained of dwindling supplies, and the Defense Department warned of compromising national security. Through the summer and into the fall, the plants lay smokeless and idle. In late October, President Eisenhower had had enough and invoked the Taft-Hartley Act to send the steelworkers back into the plants in November. Shortly after, he departed for an overseas trip with the contract issues still unresolved, and Vice President Richard Nixon stepped up. With an eye to the 1960 Republican Party presidential nomination and beyond, Nixon wanted not only to end the strike but also to gain support among workers. He helped persuade the companies to allow 2(b)’s survival in exchange for wage gains far below USW’s original proposal, though with a first-ever cost-of-living provision as well as health and pension improvements. In all, the plants were idle for more than sixteen weeks.
Postwar steelmaking involved labor negotiations every few years. Here, a strike is heralded in 1949.
As the 1960s began, the unions believed the companies had caused their troubles, and the companies believed the unions were responsible, but worse dangers lurked. Deprived of steel products available from the large integrated mills during the long 1959 strike, American purchasers of steel had sought alternate sources. They discovered Japanese, South Korean, and European steelmakers all too eager to unload their products at American wharves. Negligible before 1959, foreign imports rose dramatically during the strike. When American companies rolled out steel again, they found some of their old customers demure, if not frank—the foreign steel was an attractive product at a reasonable price. Pipeline companies in Texas unloaded German pipe in Gulf Coast ports, and companies in California unloaded Asian pipe in Los Angeles.
Kenneth Warren, a historian of US Steel Corporation, wrote in 2001 that in the 1950s, the US steel industry could be likened to an ostrich, “a creature … having a life-threatening propensity to bury its head in the sand and consequently failing to realize that pursuers are catching up with it.” He criticized “complacency from years of unrivaled leadership” and an “overweening self-confidence combined with an incapacity to recognize that there were innovators, good practical steelmen, and expansion-minded companies elsewhere in the world.”
Another observer of the times and especially of Bethlehem Steel was John Strohmeyer, editor of the Bethlehem, Pennsylvania, Globe-Times from 1956 to 1984. Looking back from the perspective of the mid-1980s, Strohmeyer wrote that in the postwar years, the large American steelmakers—the biggest being US Steel and Bethlehem—ran an oligopoly. They could sell as much steel as they made at just about the prices they quoted. When unions demanded better wages and benefits, the companies—not fearing labor-cost competitive advantage among themselves on account of industry-wide collective bargaining—tended to comply, then hiked prices to match or overmatch the higher labor expenses.
The smaller steel companies went along with the pricing levels of the large ones because, being a bit more efficient, they could live just fine selling at those levels. The eventual canker on the industry was the absence of passion to increase market share by driving down prices. Collusion among the steel giants held up prices, especially in periods of slack demand. The oligopolistic behavior stretched to collective bargaining. US Steel embraced industry-wide bargaining so that smaller firms could not gain advantage through lower labor costs, and, for their part, US Steel’s rivals could not be endangered by strikes aimed at them individually.
These were not the only troubles. The expansion of the US steel industry—including the new US Steel Fairless Works near Trenton—from capacity in 1953 of 121 million tons a year to 154 million tons in 1962 was mainly ineffective. The industry’s capacity usage rate in 1953 was 92 percent but in 1962 only 64 percent; American production in 1953 was 121 million tons, but in 1962, despite 154 million tons of capacity, the American industry produced only 98 million tons. In the same period, European steel production almost doubled to 80 million tons, and Japanese production almost quadrupled from 8 million to 30 million tons. Moreover, and perhaps even worse, the expansion in capacity in America from 1953 to 1962 was all too often not utilizing the newest and best technology; it was proven technology but of a sort already slipping into obsolescence.
And the problems didn’t stop there. Ossification had been settling into management and boardrooms. Such corporations as AT&T and DuPont were spending considerable sums on research and development; AT&T’s Bell Labs were a prime example. But American steelmakers were not so inclined, seemingly bent on growing their companies by raising prices rather than producing more steel in less time and with fewer workers. US Steel’s dominating size had been a retardant for fifty years, sapping motivation to innovate and press ahead. Its business plan since its 1901 creation was to be so big it could do what it pleased and still win orders, and its attitude infected those companies willing to live beneath its shadow.
At Bethlehem Steel, about two-thirds the size of US Steel in 1957, 1950s conventionality spread and caramelized. Executives looked less to dramatic technological breakthroughs than to tweaks and ratcheting up production by demanding greater speed from workers; they were trained early in conformity and generally understood they had jobs for life. Near headquarters in Bethlehem, the corporation helped make over the Saucon Valley Country Club with chandeliers, three new swimming pools, indoor squash courts, and more. Wives were meant to be supportive. Strohmeyer wrote, “Conforming to the corporation’s mores does not end with the executive. His wife (very few women have achieved executive status at Bethlehem Steel) is all but given a script to follow. Her wardrobe, topics of conversation, general appearance, drinking habits, skills as a hostess, and certainly her devotion to her husband and his career are carefully scrutinized. Her husband’s future with the company may well depend upon the impression she makes, especially if her husband is competing for a promotion.”
Eugene Grace, who had been Bethlehem’s president since 1916, chairman since 1945, and who would rule almost single-handedly until 1957, created a board solely of Bethlehem employees—generally his own hires—furthermore forbidding members to sit on other companies’ boards of directors. He also dictated board member behavior: lunch together in the best dining room, golf later in the day, and socializing within their own set.
The steel industry entered the 1960s a dominating force in the American economy, but the 1958–1959 recession had shown it green at the gills. Even top executives were beginning to notice. In 1958, the chairman of US Steel, Roger Blough, told the Cleveland Chamber of Commerce that steel wire from Germany could be bought at Cleveland wharves for forty dollars less a ton than could be offered by US Steel’s wire division just up the Cuyahoga River and that Japan was buying scrap on the West Coast, shipping it to Japan, then shipping back reinforcing bar for construction—and still underselling US producers. Blough scattered the blame: US funding of new mills overseas, US technical help that was allowing those new mills to have the best technology, and especially labor costs. “We are rapidly losing the technological margin that we have had over other nations, and that has thus far supported American wages at levels high above those prevailing elsewhere in the world,” he told the Cleveland businessmen. At the time imports were 3 percent of US production and, according to Blough, American workers were paid four times what a European steelworker made and seven times what a Japanese worker took home.
The steel companies might have tried to cut prices in order to better compete with the encroaching foreign product, or they might have chosen to raise prices to generate higher profits by which to attract more capital for upgrading the mills. After signing a new labor agreement in 1962 with the USW for only modest wage gains, the steel companies chose the latter course. US Steel announced a price hike and other companies followed Big Steel’s lead. Immediately, the union was piqued because it felt it had not asked for a big enough wage increase, but the most pronounced reaction came from President John Kennedy. Steel still being such a tremendous factor in the national economy, Kennedy became alarmed at the inflationary menace and, using threats of antitrust suits, bullied US Steel’s Blough into rolling back the increases. US Steel’s competitors, which had mimicked US Steel’s price hikes, mimicked it again and lowered them to match US Steel’s levels. The result of the attempted price hike in 1962 was that everyone looked bad—the union for being hoodwinked, the Kennedy Administration for being surprised and then interfering with private industry, and the steel companies for acting in collusion as well as flipping their position when Kennedy took umbrage.
Three years later, the large companies suffered again. In the 1965 labor negotiations, President Johnson tilted toward labor. The wage gap between American workers and foreign steelmen widened further.
Moreover, during the 1960s, ominous trends of the 1950s continued apace. Although American steel companies were growing at 3 percent a year, the Japanese industry was growing more than four times faster. Europeans also added to capacity. Moreover, governments in Italy, France, and Britain were nationalizing large parts of their steel industries in hopes of boosting efficiencies and employment; now these countries had an even larger stake in selling steel on world markets to keep employment up. Indeed, steel industries around the world were less under the sway of risk-taking fortune-seekers like Andrew Carnegie and Charlie Schwab than of politicians and economists. The politicians hearkened to votes and money; the economists assembled data to effect policy and strategy. Steelmaking was increasingly seen as an instrument of national policy, boosting GNP and employing huge numbers of workers. Nations could not retreat where huge investments were being made.
The United States, being the world’s largest steel market, was a target of hungry steel companies everywhere. Foreign steel unloaded at US ports increased six fold from 1961 to 1968. The nation evolved from a steel exporter to a steel importer. A global steel industry was taking shape. The American industry remained fixed on the 1850s-through-1950s formula of assembling Great Lakes iron and Appalachian coal at inland factories, generally ignoring huge ships traversing oceans with blast-furnace size loads of ore and coal to foreign coastal steel mills. Ore delivered to Japan in 1960 at $5.90 a ton dropped to $3.65 a ton in 1969. In 1950, steel product shipped across oceans was 8 percent of the world market; in 1967 it was 17 percent.
In addition, technologically, American firms were slipping. Japan worked especially hard at building larger and better blast furnaces. By the early 1970s, US Steel operated sixty-seven blast furnaces whose average annual output of pig iron was 465,000 tons each. By comparison, the twenty-five blast furnaces of Nippon Steel were immense; their average annual output was 1.8 million tons each. A blast furnace at Schwelgern, Germany, could spew 3.8 million tons of pig iron a year.
In addition, America was slow to adopt the basic oxygen furnace (BOF) process. Even when the American industry did awaken to BOFs, it was not the major companies such as US Steel and Bethlehem that made the investments. The first BOFs in the United States were constructed for McLouth in Michigan and Jones & Laughlin (J&L) in Aliquippa, Pa., and Cleveland. US Steel did not decide to build its first BOF until the early 1960s, when the West Coast’s Kaiser Steel was already at 43 percent BOF. Although making 25 percent of the nation’s steel in 1965, US Steel’s production was only 14 percent by BOF. By mid-1967, this figure was up to 25 percent, but by then Republic Steel was at 40 percent and Jones & Laughlin at 38 percent. Overall, the nation’s output of steel by BOF at the time was 33 percent. Japan was far ahead. By 1970, its conversion to BOF had reached 95 percent.
Similar statistics follow continuous casting. Although having been part of the early research and development for the continuous casting process, America’s steel industry was slower to put it into practice. At the end of the 1960s, 4 percent of Japan’s steel was continuously cast, 7 percent of Germany’s, and 3 percent of America’s. Five years later the respective figures were 31 percent, 24 percent, and 9 percent. At Bethlehem Steel, according to a chronicler of Sparrows Point, Mark Reutter, resistance to continuous casting stemmed in part from hidebound fiefdoms; because continuous casting crossed three phases of steelmaking—making molten steel, transporting molten steel, and rolling—supervisors and workers didn’t want a new process requiring shared jurisdictions.
Again, in the United States the smaller companies took the initiative. Ninety percent of the continuous casting was by companies controlling only 3 percent of the nation’s steelmaking capacity. From 1962 to 1965, Bethlehem Steel built the last integrated steel plant in America, a huge complex at Burns Harbor, Indiana, east of Inland Steel’s and US Steel’s Gary works at the southern tip of Lake Michigan outside Chicago. In 1965 it spent one million dollars on a week-long opening celebration, but by and large Bethlehem thought of the new plant as a means for new capacity rather than one embracing advanced technology. Moreover, Bethlehem dabbled in research and development but made poor decisions about putting some advances into practice. The company abandoned a nearly finished continuous caster project at its Johnstown plant after determining the site was too cramped. Complained one research executive at Bethlehem, “There were no technical people in [top management]. It was almost like, ‘Take the [research] money, don’t bother us.’ ”
Through the 1960s, the American large integrated companies remained in a bind. Net income as a proportion of sales diminished steadily, from 10 percent in 1957 to 3 percent in 1970. The postwar expansion was waning, and cheap foreign imports dampened what the companies could charge. Because the Kennedy Administration had quashed the movement to higher prices, too little money was coming in for upgrading plants.
And these were not the only problems for the big steelmakers. Jackals from other industries nipped at their heels. Fresh from increased development and production during World War II, especially for aircraft, the aluminum industry was keen for moving into consumer goods; it set its sights on cans. Reynolds Aluminum told Esso’s oil refinery in Bayonne, New Jersey, that Reynolds would buy back for scrap any quart-size aluminum cans it sold the refinery as oil containers. Esso switched from steel to aluminum and was pleased with the lighter metal’s superior resistance to corrosion. Reynolds then trucked a canning machine to Florida and offered to put frozen orange juice in aluminum cans. Minute Maid soon appreciated the longer shelf life of these corrosion-resistant cans and switched to aluminum. Steel companies tried to counter with thinner tin plate, but the aluminum companies lowered their prices to expand market share; the steel efforts were too little too late. As steel companies had captured the beer market from glass bottle makers in the 1930s, now aluminum was wresting food and beverages away from steel. The march of aluminum became relentless—nearly all beer and soda cans today are made of the lightweight metal. Steelmakers were left with a big hole in their order books.
This was not all of the market’s problems. Ever since railroads had replaced wooden trestles with those made of steel, bridges meant steel—and plenty of it. Bethlehem proudly supplied the elements for the Golden Gate Bridge at San Francisco and the George Washington Bridge across the Hudson at Manhattan, both symphonies of steel completed during the Depression. In the 1950s, however, smaller spans and overpasses were more in demand, most notably for the expanding interstate highway system. Steel trusses and huge I-beams gave way to sections of prestressed concrete. These required lower-quality steel reinforcing bar and other steel elements, but far less than if the bridges were built entirely of steel. Even in building construction, steel often yielded to prestressed concrete, especially in such utilitarian structures as parking garages.
And like early little mammals darting beneath the legs of ground-trembling dinosaurs, small products made from plastics were foreshadowing an upheaval in product construction. During the Depression and World War II, scientists at companies like DuPont were constructing polymers that were strong, heat resistant, and noncorrosive, and could be quickly molded rather than machined. Once used for novelties such as prizes in cereal boxes, plastics soon were put to use in food packaging, picnic plates, utensils, radios, toys (cowboy pistols, not steel model trains for boys), outdoor furniture, and then indoor furniture. Automobile makers liked plastics for consoles, dials, and grills for styling, cost, and weight reduction. It seemed as if plastics scientists and manufacturers were bent on entirely remaking familiar consumer and industrial products with replicas made of plastic or similarly engineered composites.
Moreover, in 1959, Sputnik rattled the nation. The trend had already been set by interest in rocketry, but Sputnik hastened the movement to reducing weight in products, doing more with thinner steel or no steel—placing anything in space required rationing every ounce. In fact, any sort of transportation would be improved with weight reduction. When hauling product from factory to retailer, if product was lighter, the cost would be lower. A culture of thick steel as an image of power and prosperity was yielding to the small, the electronic, and the lightweight. Vulcan still clanged, but Mercury was becoming the trendier god. Forecasts made in 1956 for steel production in the United States were for 130 million tons in 1960; it turned out to be 99 million tons. For 1965, the forecast was for 146 million tons; it turned out to be 131 million. In the mid-1950s, Bethlehem Steel’s Eugene Grace confidently opined, “I have no doubt that the story will be one of increasing per capita use of steel in spite of the development of competing materials. I have no qualms about excess capacity.” He was wrong.
In the 1960s, plastics were not the only quick-footed little mammal darting beneath the mammoth legs of the integrated-mill dinosaurs. Entrepreneurs built mini-mills where they could have access to reasonably priced electricity and supplies of scrap steel, a large portion of which came from junked cars. The point was to make finished steel product without the labor- and capital-intensive environmentally profligate coke ovens and blast furnaces. Chemists and steelmakers, even in the nineteenth century, understood they could melt metal with powerful electric arcs, but the process only became commercially feasible in the mid-twentieth century, after early development in France and the United States. The savings potential over the traditional method of coke oven to blast furnace to pig iron to steelmaking furnace was tremendous. Mini-mill steelmakers bought scrap, which they placed in electric arc furnaces. These were small compared to the furnaces of the integrated steel mills, and lined with refractory brick with removable tops. With scrap in the lower portion of the furnace, the top was replaced and graphite rods lowered through holes. Powerful alternating current was turned on, creating arcing between the ends of the rods and the scrap. Currents in the scrap as well as the tremendous temperature of the arcs melted the metal in about an hour. Chemistry was controlled by the type of scrap used plus additions of selected scrap types and chemicals; a slag floated on top of the steel bath, taking up many of the undesirable elements. When the chemistry was correct, the steel was let out a tap hole at the furnace bottom into a ladle. In addition, mini-mills used continuous caster technology. Steel from their ladles flowed directly into tundishes for descent into continuous casters that cooled the steel and altered its direction from vertical to horizontal.
Mini-mills sprouted where pedestrian steel products such as reinforcing bar, construction pieces, oil pipe, and light rail were in demand. Some set up in the Carolinas, Florida, and the Southwest—territories with growing economies but generally ignored by integrated steelmaking companies. Mini-mills also tended to build in nonunion areas, though the wage difference between union and nonunion mills was not as great as the relaxation of layers of management and work rules. Another advantage of the minis over the integrated mills was that the furnaces could be turned on and off as demand required (purchasers being increasingly interested in just-in-time deliveries). This was not true of the blast furnaces, which to be economical had to run twenty-four hours a day, seven days a week. Mini-mills began to cut into the reinforcing bar and other markets of the larger integrated companies.
One of the most successful of the mini-mill companies was Nucor. A manufacturer of steel joists (look upward at the ceiling of large big-box buildings), and desirous of a controlled source of steel for its joists, Nucor built an electric furnace mini-mill in 1969 at Darlington, South Carolina. A young metallurgist named Ken Iverson ran it. He was determined to keep his plants union-free. Partly he did this with a bonus system that kept take-home wages high—higher even than in integrated mills. Iverson also fiercely held support staff to a minimum (he was known for answering his own phone) and bureaucracy thin (promotion from maintenance man to CEO was only four classification grades). Nucor offered no executive perks, such as company cars, named parking spaces, or an executive dining room. Iverson also was keen on new technology and efficiency. The Darlington mini-mill was more efficient than mills in Japan. Iverson was soon setting his sights on opening additional mini-mills in rural Nebraska and Texas.
This was still not the end of bedevilments for the big integrated steelmakers. The Upper Great Lakes iron-ore bounty was thinning. During World War II, steel companies extracted ore from the Iron Range at a rate twice the average of previous years. Consequently, the rich and easy portions were dwindling. Spread wide around the edges of the richest veins, however, was the chert rock called taconite, comprising 25 to 30 percent iron. Previously considered a waste and a nuisance, after the war taconite drew the attention of iron-ore companies, and research intensified on how to extract the iron. The solution was to crush the taconite to powder, separate the iron using magnets, then create round pellets of 65 percent iron, suitable for blast furnaces. This pelletizing of taconite proved a boon to the continuation of iron mining around Lake Superior. Starting virtually from scratch in the late 1940s, 1.5 million tons of taconite were shipped in 1955, and by 1965 capacity for taconite production was 50 million tons. But pelletizing of course was an added cost.
Troubles grew on the factory floor, too; discipline was slipping. With new labor-saving machinery, slacking demand, strong union rules, and companies reluctant to lay off workers (politicians also opposed layoffs), by the 1960s some men found themselves with too little to do. Deborah Rudacille, a journalist observer of Sparrows Point, wrote of men who believed “working as little as possible was viewed as a victory against the company.” Section 2(b) protected some men. Soft jobs—sweeping halls was one—were given to men nearing retirement to avoid laying them off. One worker estimated that at Sparrows Point thousands of workers could have been let go without appreciable trouble running the plant. Moreover, one management response to slacking profit margins was increasing the number of management personnel with respect to rank-and-file workers. The result was ineffective, possibly because with so many managers, hourly workers lost initiative; they were ordered about so often by so many managers they fell into listlessness. The contrast with Nucor, where initiative and worker decision making reigned, was striking.
When the 1960s ended, the United States was losing its lead as the world’s premier steelmaker. By 1971, the world leader was the Soviet Union, which produced 120 million tons compared to 109 million by the United States. Japan produced 89 million tons and China an estimated 21 million. During the 1960s, America’s share of world production slipped from 26 percent to 20 percent, considerably less than in the 1870s. And US Steel, the gigantic corporation formed in 1901 that at the time represented 25 percent of the nation’s wealth, was no longer the world’s largest steel company; in 1970 Nippon Steel was. Wrote Warren of the 1960s era, “[F]or one reason or another, US Steel—like most other leading American firms—was slow to adopt the new steel-making technologies that, as subsequent events proved, would dominate world production. Similarly, it is difficult to avoid the conclusion that, whatever the mitigating circumstances, the fundamental cause was entrepreneurial failure.”
Meanwhile, Americans were becoming increasingly interested in cleaning their rivers and ridding the air of industrial particulates. Hopes for winning World War II gave a pass to large industries for concentrating on product despite the environmental cost—the boys in uniform needed arms and equipment both in abundance and in a hurry. But with a more prosperous and peaceful society in the 1960s, Americans felt they could afford to clean up some of the collateral damage. The Clean Air Act passed Congress in 1963 and the Clean Water Act in 1972. Huge amounts of money were going to have to go to pollution control rather than steel-technology upgrades. Naturally, the older equipment and mills were the worst water and air offenders, and the largest steel companies had plenty. Abating pollution was disturbingly expensive, all the more troubling in a time of squeezed profits owing to labor demands, competition from imports, and curtailed markets.
In 1968, Jones & Laughlin Steel faltered. Ling-Temco-Vought (LTV), an industrial conglomerate based in Dallas, bought a huge share—and by 1972, it had total control. In 1969, Lykes Corporation merged with Youngstown Sheet and Tube, burdening the new corporate structure with debt and removing much steelmaking decision making to New Orleans. Nevertheless optimism ruled. US Steel’s Edwin Gott proclaimed in 1967 that the “world steel market will increase 40 percent over the next ten years” and by 1980 would reach one billion tons. At Bethlehem Steel, the received wisdom was that bad times would always be followed by good times; bustling profits as of old were just around the corner.
To some extent, Bethlehem Steel’s optimism was not unfounded. The American steel industry’s biggest year was 1973, when it produced 151 million tons and companies looked forward to expanding capacity. But as the decade progressed, defense purchasing declined, OPEC made energy more expensive, and stagflation hobbled the economy, all of which worked to constrict steel orders. Moreover, America was maturing from its days of skyscraper construction, pipeline laying, and interstate highway expansion. Consumer products and their packaging looked to be thinner and lighter. Production slackened. These same trends echoed around the world and yet steelmaking countries continued to expand their mills. The result was that by the early 1980s, the world industry would be awash in two hundred million tons of annual overcapacity, a circumstance ripe for fierce, nasty competition.
The 1970s began especially dismally for Bethlehem Steel. Builder of the George Washington Bridge, the Golden Gate Bridge, Rockefeller Center, and the Waldorf-Astoria Hotel, Bethlehem had a vaunted steel fabrication unit called McClintic-Marshall. The division spent $500,000 writing a bid for supplying and fabricating the steel for the planned World Trade Center in New York. Bethlehem, which together with US Steel had supplied most of the skyscraper steel in Manhattan, submitted the lowest bid—$117 million—but the New York Port Authority running the project still thought the proposal too high and instead doled the work out to dozens of smaller companies for $83 million. Firms for some of the work bought Japanese steel on the West Coast, fabricated it, and then sent it to New York via the Panama Canal. Strohmeyer opined that McClintic-Marshall had become bloated—the workers were covered by Section 2(b) of the USW contract and management was padded. Bethlehem’s board wanted concessions from the union, but believing the corporation was bluffing, the union’s response was only to offer sacrifice of the workers’ dental plan. Bethlehem wasn’t bluffing; it broke the division down and sold off the parts.
Mistrust and animosity between labor and management gnawed at the fabric of the corporations. Contracts tended to raise wages but also stretch the gap between what was paid to American workers and their counterparts overseas. For their part, the corporations were increasingly annoyed at the boom-bust cycle associated with labor negotiations—large customers such as the auto companies, seeing steel labor negotiations approaching, increased their orders to stockpile material against the possibility of the steel plants shutting down. Accordingly, the industry in 1973 came up with the Experimental Negotiating Agreement (ENA). Corporations received a no-strike pledge from the USW and in return allowed a cost-of-living clause for wage increases. Unfortunately no one foresaw the rampant inflation of 8 to 14 percent beginning late in the decade. The result was that wages rose while Section 2(b) kept employment high and profits under heavy pressure. For allowing wages to get out of line, Strohmeyer laid partial blame on Bethlehem’s executives—they were so well paid themselves that they were numbed to payment discipline on the mill floors. Strohmeyer also laid blame on Schwab and Grace for not paying attention to developing new leadership; Grace, in fact, held on to power despite debilitating strokes and died in harness, still receiving considerable emolument although not attending board meetings.
No one seemed capable of yanking the industry out of the discomforting circumstances in which it found itself. In Bethlehem, executives led a cushy life in their new office tower put up in 1969 to 1972 for between twenty and thirty million dollars, enjoying six to seven weeks of vacation a year and twelve holidays with pay. Meanwhile, on the plant floors, rigidity trumped innovation. Strohmeyer quoted a Bethlehem executive of the time: “The Bethlehem way was ‘The way we always did it in the past.’ … [P]rizes did not go for objective intelligence or academic training. Rarely were promotions based on merit.” Another executive of the time pointed to nepotism, “yes men,” overlapping committees, and duplication of disciplines. Warren wrote of the period, “[T]here seems to have been a general psychological problem, one natural enough in an industry that had led the world for almost a century. As one spokesman put it, ‘there’s an attitude in the steel industry that says, “if it worked last year, it will work this year.” ’ ”
The year 1977 was bad for Bethlehem Steel. January blizzards howling across Lake Erie ran up emergency costs at the Lackawanna plant. Fires at Bethlehem coal mines in western Pennsylvania cost the company millions. Summer floods in Johnstown crippled plants there. In all, Bethlehem lost $488 million for the year. Management understood it had to be a leaner company and looked to shuttering either the Lackawanna or the Johnstown facilities. Both communities howled in protest, so Bethlehem split the pain, keeping parts of both plants but eliminating 7,000 jobs. It also cut 2,500 white-collar jobs.
It was a bad year in Youngstown also. September 19, 1977, is still known in the Mahoning Valley as Black Monday, the day the city’s flagship company, Youngstown Sheet and Tube was broken up and parts sold to Republic Steel. Thousands of steelworkers lost their jobs. Youngstown’s economy, almost totally dominated by steel plants, reeled; the city’s future dimmed.
Meanwhile, Japanese and European steel began besting American steel in quality as well as price. Purchasers, including automakers, were rejecting American steel at higher rates than they were Japanese or European steel. By the early 1980s, the Ford Motor Company was rejecting almost 10 percent of the American steel it was receiving and told the steel companies that if they could not cut that by two-thirds, they would lose its business. Superior Japanese quality likely had something to do with the Japanese companies spending 1.6 percent of revenues on research while the Americans spent 0.6 percent.
Looking back on this period from the late 1980s, John Hoerr, a journalist who grew up alongside Pittsburgh steel mills, took management to task. In a massive work on the decline of the American integrated steelmakers, And the Wolf Finally Came (1988), he accused managers of misreading a morphing global industry, losing the advantage of low-cost raw materials by failing to develop foreign sources, and ending up with poorly situated, partly upgraded plants that kept falling behind the foreign competition. Hoerr admitted that other industries such as rubber and autos fell prey to the same shortcomings and that some difficulties such as currency exchange rates were beyond management’s control. But he took steel companies to task for ignoring the ingenuity of their own workers and wrote that “the organization and management of work on an old-style basis—narrow, functionally defined jobs and autocratic management style—resulted in alienated workers, poor product quality, and lagging productivity growth.”
Strohmeyer tracked down Bethlehem Steel’s Lewis Foy, CEO from 1974 to 1980, quizzing him about his tenure in the 1970s. Foy said in the interview, “The industry made a helluva lot of mistakes. … We [Bethlehem Steel] didn’t keep ourselves lean enough. … We never should have built Martin Tower [Bethlehem’s office building], because once you build a building you fill it up. We permitted costs to escalate. … We tried to be all things to all people. We never should have done that.”
Foy listed other miscues and blunders. He said the US government should not have blocked—on anticompetitive grounds—Bethlehem’s 1950s attempt to take over Youngstown Sheet and Tube; the result was Bethlehem having to build the new plant at Burns Harbor, Indiana, spending money for a plant it could have had cheaper at the existing Youngstown facility. Foy blamed the government for badgering for lower steel prices when steel made up less than 3 percent of GDP, while at the same time ignoring price hikes in the food and computer industries that had a larger impact on inflation. Foy resented Bethlehem having to spend a fourth of its capital during the late 1970s on pollution controls when other countries’ environmental laws were more lax. And he pointed to government depreciation laws that made capital more expensive in the United States. Other culprits Foy listed were the US Export-Import Bank, which funded steel mills in developing countries, thereby exacerbating global overcapacity, and government policy too lenient of foreign countries selling steel on American shores at prices lower than the cost of production—dumping was the term used. Foy claimed that overall the American industry improved—for example, American steelworkers were the world’s most highly productive in terms of man-hours per ton—but that the companies could not overcome their wage disadvantage compared to other countries: in 1979, American steel companies paid their workers an hourly wage of $16.39, German companies $13.55, Japanese $9.73, and UK $6.68.
Hoerr tasked “decades of adversary relations on the shop floor.” He felt bargaining was in the hands of top-level union and company persons intent on avoiding strikes rather than solving problems where men worked. “By the early 1980s, the neglect of shop-floor relations had adversely affected attitudes, productivity, and product quality,” he wrote. “Management made no attempt to involve the union officials, much less the workers, in cooperative efforts to improve the work process.” Hoerr also tasked the unions. He blamed them for protecting work rules rather than looking at the big picture, and he blamed workers for dismissing union officials as sellouts when they suggested better relations with management.
In any event, the late 1970s saw American integrated steel companies paying dearly for missteps in the 1960s and ’70s, mainly failing to upgrade technology in their plants and forge amicable labor relations. In 1979 alone, US Steel closed thirteen struggling plants, writing off $293 million of investment.
At Bethlehem Steel, the 1980s began with a party. Departing CEO Lewis Foy flew two hundred executives and their wives to a Boca Raton resort. Profits had bounced back from the horrible year of 1977 to more than five hundred million dollars over 1978–1979. Everyone was to have a good time, but the passing of command implied the party was not going to last forever. Per Bethlehem tradition, Foy chose his successor. His pick was Donald Trautlein. But the man to take Schwab and Grace’s old seat was no steelman; he was an accountant who had come up through Price Waterhouse, handling the Bethlehem account. Foy had brought him over only three years previous and elevated him on the theory that Trautlein could interpret the numbers and make them balance.
As Trautlein took the reins, market environment was poor. Foreign steel held more than a quarter of the American market. Then came the recession of 1981–1982. This was the so-called Reagan Recession by which Carter-appointed Federal Reserve Chairman Paul Volcker attempted to wring high inflation out of the economy—and succeeded, but at a horrible cost. The recession was in some ways the most severe since the 1930s. Unemployment spiked to 11 percent. American steel companies were especially traumatized; Reagan Administration policies made for a strong dollar, lowering the cost of imports by 40 percent. Despite having shuttered two hundred facilities since 1974, steel companies were running at only 48 percent of capacity, the lowest since the Depression. And despite having trimmed their employment by 200,000 workers since 1974, the steel industry in 1982 dismissed 140,000 more. Even with these fearsome and devastating cuts, the industry still lost more than three billion dollars in 1982; Bethlehem’s share was almost five hundred million.
Cost-cutter Trautlein rolled up his sleeves. He slashed the white-collar force from twenty-three thousand to eighteen thousand. He wiped out whole departments. He eliminated subsidies to the Saucon Valley Country Club and three others near Bethlehem plants. He sold off company jets and the company’s research and development facility. Bethlehem’s employment roll in 1975 had been 115,000; by 1984, Trautlein had reduced it to 48,500. Wages in the mills, however, remained about the same: twice what Japanese companies paid and one third higher—factoring in benefits—than for workers in mini-mills.
The American economy was changing. From 1979 to 1984, manufacturing output rose 7 percent but computers and electronics rose 50 percent. Railroad equipment declined 80 percent during the period; American automaker purchases of steel fell from peak years of twenty-two million tons to thirteen million, partly because the American auto companies were also losing sales to imports and consequently ordered less steel from American steel producers. Container companies halved their orders for steel from eight million to four million tons.
A crisis for American steelmaking companies clearly was at hand. US Steel felt diversification would ease the pain. In 1982 it acquired Marathon Oil Company and a few years later Texas Oil and Gas, to become partly an energy company. But its steelmaking component, as well as other integrated steel companies, generally looked to two sources for relief: wage cuts from workers and government policies to hold back imports. The worker fight would come first.
It would not be easy. Despite workers understanding that the industry was on wobbly knees, they believed concessions to be rollbacks from advances going back fifty years. Nevertheless, in 1982 the American companies asked the USW to open existing contracts meant to run to July 1983 and consider lowering the wage rates by five dollars per hour. Union leaders responded that the union would give up three dollars an hour in wages and benefits, but when put to a vote, the rank and file rebelled. What the rank and file finally agreed to at the end of 1982 was a reduction in wages of $1.25 an hour to be recouped over forty-one months, a suspension of a cost-of-living adjustment clause to be fully reinstated in three years, paid holidays to be reduced from twelve to ten, and the end of thirteen-week vacations every five years. The companies again had to swallow survival of Section 2(b), the modification of which they said would aid their plight. Still, this was the first time workers had agreed to concessions in wages and benefits, a rollback of about 9 percent, most of which would be regained and then some within several years. The agreement was meant to save the companies $2 billion, which the companies said would be used to modernize plants.
US Crude Steel Production, 1968–2013 (thousands of metric tons)
Data supplied by the World Steel Association
US Crude Steel Imports, 1968–2013 (thousands of metric tons)
Data supplied by the World Steel Association
Hoerr was not impressed. “Each side sought only to advance its own interests,” he wrote. “But the decline of the steel industry—its poor profit showing, decreasing productivity, and lack of investors—should have galvanized both sides to focus on their mutual interests. Instead, each side blamed the other and stood aside as jobs dwindled.” He added, “I became convinced that the problem in steel was rooted in forty years of poor management of people and a misdirected union-management relationship. For most of that period, steel management regarded hourly workers as an undifferentiated horde, incapable of doing anything more than following orders and collecting the paycheck. Suddenly, in 1982, that horde was expected to turn into an enlightened group of rational individuals with implicit trust and faith in the company and a willingness to accept whatever management said was necessary to put its financial affairs in order.”
In any event, Trautlein, being able to demonstrate sacrifice on the part of steel’s workers, then went to the federal government in an attempt to wrest policies that would constrict foreign imports at least long enough for the American industry to make profits for modernizing plants. Trautlein told Congress that the large American steel companies had lost $3.2 billion in 1982, $3.6 billion in 1983, and $204 million in 1984. He told Congress as well that, in his estimate, during the early 1980s foreign governments had pumped $40 billion of subsidies into their steel mills. What he wanted from the Administration was for foreign imports to be rolled back to 15 percent of the American market for five years, saying “dumped and subsidized imports are undermining [the industry’s] very foundation.”
Trautlein’s request was going to be a tough sell. President Reagan touted himself a free trader. Moreover, there was the old counterargument that, one, American companies and consumers benefitted from low-cost steel in their markets, and two, steel-purchasing companies such as automakers—who employed far more workers than steel companies—needed to keep costs low on account of their own foreign import challenges. On the other hand, Reagan was facing an election in 1984, and he stood to lose support from angry steel executives, steel company stockholders, and hundreds of thousands of steelworkers if the plants continued to close and workers were tossed out on the streets. Heeding Trautlein, the International Trade Commission (ITC) voted three to two recommending relief, but the ultimate decision would be Reagan’s.
The ITC’s recommendation arrived on Reagan’s desk in July and required a decision in late September, six weeks before the election. In mid-September, Reagan came up with his own plan, a slyly worded compromise. His administration would negotiate with the foreign steelmaking countries in an effort to limit imports to 18.5 percent of the American market, a significant reduction. These would be voluntary restraints, thus not technically a government interference of free trade. They were to remain in effect for five years. What happened was that foreign companies added value to some of their products to evade definitions of the voluntary restraints and otherwise worked to counter the agreements so that foreign imports never fell to the stated 18.5 percent. The American industry received some relief but hardly the expansive breathing room it desperately needed.
Bethlehem continued to have trouble with the Lackawanna plant south of Buffalo. Labor relations there were worse than at its other plants. And Bethlehem was paying five times the taxes on product shipped from there than it did elsewhere. Moreover, the city levied dubious assessments on the plant. As it turned out, Bethlehem was paying 73 percent of Lackawanna’s city property taxes, and there were lots of solid waste liabilities. Bethlehem all but shut the plant down in 1983.
At Bethlehem’s Johnstown operations, the company received authority to bargain independently with the USW. Consequently, workers there agreed to wage cuts, some of which would be made up by a fund comprising a new class of preferred stock. These sacrifices kept the Johnstown plant operating, but most of the local union officials who negotiated the concessions were subsequently voted out of office.
Elsewhere, National Steel was disintegrating. In 1983 it wanted to sell off or close its large Weirton, West Virginia, plant. The workers decided to buy it, creating the largest ESOP (Employee Stock Ownership Plan) conversion of that time. The Weirton workers agreed to a 20 percent pay cut and no raises for ten years in return for an equity position and a portion of the plant’s profits. The effort was a success, and the Weirton plant went on to years of profits. In another major development, in 1984, LTV, which had previously bought Jones & Laughlin and was later the parent company of Youngstown Sheet and Tube, took over Republic Steel. With all these properties, LTV formed LTV Steel, instantly surpassing Bethlehem as the nation’s second largest steelmaker.
But still the American industry struggled. In the mid-1980s, the world’s steel mills had capacity of nine hundred million tons competing for demand of only six hundred million tons. And so the bloodletting continued. Despite Trautlein’s herculean and continuous cost cutting that shrank Bethlehem to thirty-five thousand employees by the end of 1986, Bethlehem Steel lost two billion dollars in the years 1982 to 1986. Even Trautlein had had enough; he quit as CEO in 1986. In 1984, what was left of National Steel sold half of its assets to Japanese steelmaker Nippon Koukan. National’s workers were said to be relieved they had not been sold to US Steel, where they believed labor relations were poor; moreover, they thought Nippon Koukan had good technology they could spread to the American plants.
In 1983, US Steel surpassed its 1979 dismantling effort by shutting down all or part of twenty-eight plants, terminating 15,500 workers, and reducing the company’s steelmaking capacity from thirty-one million tons per year to twenty-six million. In addition, the corporation began selling off coal and iron-ore properties, both in the United States and abroad. In 1986, on account of its huge investments in oil and gas, US Steel changed its name to USX, with the steel portion under the moniker USS—a name scheme that would last fifteen years. In 1988, the company sold most of its Great Lakes fleet of ore boats, as well as barges and railroads. US Steel cutbacks hit Pittsburgh particularly hard. In the 1940s, US Steel had operated twenty-five blast furnaces there; by 1979, the number was thirteen, and by 1983, two. It shuttered mills all along the Monongahela River Valley. The company was also backing out of its Youngstown operations. Employing 16,000 persons there in the 1950s, the US Steel works in Youngstown employed 4,000 in 1980 and only 750 by 1984. The plant was both out of date and poorly located for delivery of materials.
In 1985, Wheeling-Pittsburgh, the seventh largest steel company at the time, filed for bankruptcy. In 1986, LTV Steel, the company that had taken over both J&L and Republic, did so as well, claiming in part that it could not keep up with demands of its pension funds for retired workers. Numbers told part of the story: The LTV Steel companies (largely J&L, Youngstown Sheet and Tube, and Republic) in 1970 employed 108,000, produced fifteen million tons of steel, and paid benefits to 27,000 retirees. In 1985, LTV Steel employed 25,000 while producing considerably less steel—nine million tons—and yet had to pay benefits to 71,000 retirees. LTV Steel continued to operate but under bankruptcy protection.
The same year of the LTV Steel bankruptcy, US Steel and the USW could not agree on new contract terms and shut down for 184 days (the union called it a lockout). When the two sides settled, the union won provisions but the company was allowed to eliminate jobs, which it did with greater zeal than the union had anticipated, fostering even more labor resentment.
By 1987, American steel industry annual capacity had fallen to 112 million tons, and some observers were saying another 20 million tons should be demolished. Since 1975, American steelmaking employment had dropped from 548,000 to 283,000. These years from the late ’70s to the mid-’80s composed a calamity unknown to American industry. Hoerr quoted a Pittsburgh union official of the time: “One problem in the mills,” he said, “is no union man would trust any of the companies. To the average union man, they’re always crying wolf. And the wolf finally came.” It was a wolf that ate both the workers and the companies.
There was pain overseas as well. From 1975 to 1986, Japan trimmed its steel employment by 23 percent, West Germany by 32 percent, and France by 41 percent. Meanwhile, steelmakers in Mexico, South Korea, Argentina, and Brazil were producing from new mills and capturing market share. American banks were part of the problem. They wanted to earn 20 percent on loans to Brazil steel plants and kept pumping money into them to assure steady payments. Brazil steel imports into the United States more than tripled from 1981 to 1986.
Ken Iverson, still building up Nucor—by 1985 it was the nation’s eighth largest steelmaker and growing—scoffed at the Reagan voluntary restraints, which he said could be too easily circumvented. He believed mini-mills could at the time produce 30 percent of the nation’s steel and the integrated mills 70 percent, mainly wide rolled sheets for automobiles and appliances as well as large structural elements for construction projects. But he urged the integrated companies to end crippling out-of-date work rules, wrestle down wages, raise the technological education of employees—both blue- and white-collar—and boost tonnage per worker. “The main problem is productivity,” he said.
Even J. Bruce Johnston, a US Steel employee and chief negotiator for American steel company management at the time, laid more blame on the cost of capital than on the cost of labor. Carnegie and Schwab built the present industry with cheap capital, he opined to Strohmeyer in 1985. But later the American industry had to endure tax laws requiring plant depreciation over twelve years. A plant would be totally worn out by that time and too expensive to replace. Johnston compared this to capital write-offs in Europe of five years, Canada of two years, and the UK of one year. In the developing countries, “capital support for the steel mills has been unlimited,” he said.
Warren reported that “Between 1982 and 1986, the [American] industry lost $12 billion, shut down over 40 million tons of capacity, managed to improve labor productivity by nearly 40 percent, and reduced costs by 35 percent” and yet despite these last two advances still could not shake its sorry decline. It was, he wrote, “… a mature industry whose locations were chosen and infrastructure and plant built in a previous age. Although it can and must be modernized, it is difficult to make such an inherited structure fully competitive with new facilities and plants. In short, as the Old World realized too late a century ago, no industry can discount its economic history. Existing companies have to bear the resulting extra costs.”
Hoerr wrote of the industry in the 1980s, “It could be argued that the bargaining relationship between the Steelworkers and the steel industry never came to grips with a central issue of overriding importance: relating compensation to the quality of work and productiveness of the workplace itself. This is the great failure of the industry and the union, and it is linked to the origins of both.”
On the debacle of the mid-1980s, Strohmeyer wrote, “A common perception is that big steel is in trouble because it is under siege from world forces it can no longer control. That is only partially true. … [T]he biggest cause for the industry’s distress is the internal strife that saps its strength from within. Accordingly, the greatest hope for its recovery rests not on what is happening on the outside but on whether steel management and labor can recognize … that they have to stop killing each other. Perhaps no industry has had such sustained history of hostile labor relations.”
And of these times, Reutter wrote that “nearly everyone was ‘oblivious’ [according to one insider] to Bethlehem’s worsening competitiveness. Such was the hazard of a corporate culture that awarded conformity. Management’s response to the inroads made by aluminum and plastics was not to talk about it. In this hermetically-sealed world, supervisors went about their daily routines, lulled by the acres of machinery that still made Sparrows Point the biggest mill in the middle 1960s. They were utterly convinced that steel was indispensable to the nation … . Charlie Schwab’s important contribution was to move [Sparrows] Point forward into production of flat-rolled steels which made an excellent fit with consumer and automotive markets after World War I. His successors lacked his ability to look ahead and to adapt to changing economic realities.”
The terrible bloodletting of the mid-1980s at least had some of the intended effect hoped for by the companies: productivity rose. US Steel reported that in 1982, it was paying eleven man-hours to make one ton of steel; by 1987, the figure was less than half that—four man-hours per ton. At Bethlehem, persons still on the job worked smarter—rejection rates were cut in half during the late ’80s and profits returned in 1988. Unfortunately for the Americans, the dollar grew stronger, making for cheaper imports, and Bethlehem was saddled with pension fund payments for all the workers it had laid off. It began skipping payments to these plans.
By 1990, United States steelmakers had been considerably humbled. In the years between 1970 and 1991, world steel production had risen 24 percent to 734 million tons. But in the United States it had dropped by one third to 79 million tons. Japan had increased its production in these years by 18 percent, Europe had held steady, and new entrants in the field (Korea, India, Brazil, China) had more than doubled their output to 291 million tons. American share of world steel production had been halved from 20 percent to 11 percent. By 1990, capacity in the United States was 100 million tons, about 50 million tons fewer than in the early 1970s. American manufacturers continued to shutter old mills. US Steel cut its capacity from 16 million tons a year to 13 million between 1990 and 1997. By then the world’s largest producer of steel was China, with Japan second and Europe third.
In 1970, steel was a vital part of the United States economy, with 500,000 workers. By 1990, steel’s portion of GDP was far lower and its workforce slashed to 170,000. Mini-mills, however, bucked the national trend. Free of the encumbrances of needing coal, iron ore, coke ovens, and blast furnaces, their market share grew robustly. Mini-mills had 5 percent of the market in 1977, 15 percent in 1981, 23 percent in 1991, and almost 50 percent in 1998. America’s largest integrated steelmaker, US Steel, had made 67 percent of the nation’s steel at formation in 1901, but was making only 11 percent of it in 1996. The ray of sunshine for integrated mills, however, again was productivity, which Warren labeled “revolutionary” during this period and up to the levels of the mini-mills. US Steel made significant strides, if at great expense to families who looked to mills for livelihoods. In 1980, US Steel had almost 150,000 workers and paid $280 for each ton of steel it shipped. By 1997, it employed 21,000 employees and paid $122 for each ton shipped. In 1980, US Steel shipped 115 tons per employee and in 1999, 552 tons per employee.
Thus steelmaking was becoming smarter with more sophisticated and computer-assisted machinery. Still, the 1990s were not growth years for the world steel industry. World production of all goods rose almost 40 percent but world steel production hardly at all. Continued world overcapacity of about 20 percent hung like a cloud over all steel producers; the pressure on prices was downward.
Nevertheless, some firms pressed ahead, notably the enterprise that became Mittal Steel. Lakshmi Mittal, a twenty-six-year-old born into a northwest India steelmaking family in 1950, broke away from the family company to build a mill from scratch in Indonesia; the name was Ispat, which means steel in Hindi. By the late 1980s, Lakshmi Mittal was operating a steel plant in Trinidad and Tobago. In the early and mid-1990s, he bought mills in Mexico, Canada, and Kazakhstan. In 1997, he bought a steel operation in Germany, and in 1998 Chicago’s Inland Steel for entrée into the American market.
In the United States, Nucor continued to chip away at the integrated companies’ market share. It developed a plant for wide-flange I-beams in Blytheville, Arkansas, and a continuous caster for thin slabs in Crawfordsville, Indiana. It added other products as well. It experimented with direct reduction methods, and it continued to rise in rank by size through the list of the diminishing integrated steel companies. By the 1990s, because of mainly using scrap steel (mostly junked automobiles) as its raw material, Nucor became the largest recycling company in the nation. Its goal in the mid-1990s was 15 to 20 percent annual growth.
Conversely, stress was the lot of Bethlehem Steel. It begged the government for more protection. It closed its Lackawanna plant in 1982 and the Johnstown operations in the early ’90s. When Nucor entered the I-beam market, Bethlehem ultimately responded in 1995 by closing its Bethlehem, Pa., mill, its birthplace operation. It advanced a plan to have the land of the old mill named Bethlehem Works, tear much of the old furnaces and shops down, create a National Museum of Industrial History in conjunction with the Smithsonian Institution, and set some land aside for a major gambling casino (the casino opened in 2009; the museum was delayed). By 1999, Nucor had made new acquisitions and built new plants so that it surpassed Bethlehem Steel in revenues. Also by this time, stock investors had increased Nucor’s market capitalization to more than Bethlehem’s and US Steel’s combined. In 1999, Nucor made a profit of $244 million while Bethlehem lost $183 million. According to one observer, in the year when Nucor finally equaled Bethlehem Steel in the amount of tons sold per year, it had 100 corporate employees to Bethlehem’s 2,000.
In 1993, LTV Steel emerged from seven years of bankruptcy protection. It had reconfigured its pension plan payments and was concentrating on improving its operations. It closed a Pittsburgh coking facility rather than pay the high cost of bringing it up to pollution control standards. It announced a partnership for building a mini-mill in Decatur, Alabama. Principally, LTV Steel comprised the Indiana Harbor works in East Chicago (formerly a Jones & Laughlin plant) and a former Republic Steel works along the Cuyahoga River in Cleveland.
The recession associated with the dot-com collapse of 2000 hurt steel sales, causing further damage to the integrated companies. That year LTV Steel, then the third largest of the nation’s steel companies (Nucor having surpassed it for second after US Steel), again filed for bankruptcy with a plan for selling off its assets. More than seven thousand employees were going to be thrown out of work and their benefits cut. This nasty fate was thwarted by Wall Street financier Wilbur Ross, a man with experience buying and reconstructing ailing companies. He offered to keep LTV Steel running on the condition that under his ownership it be released of obligations for the health and life insurance plans of its eighty thousand retirees. The USW was thus faced with a horrible choice: saving the jobs of five thousand workers to be left after the proposed acquisition at the cost of the health and life insurance plans of eighty thousand others or turning down the deal and likely seeing even the five thousand jobs disappear. The USW opted for keeping the LTV plants going, so Ross bought LTV Steel in 2002 for $327 million ($127 million in cash, the rest as environmental responsibilities) and renamed it International Steel Group (ISG). He hired a former Nucor manager, who ran the operation like a mini-mill, slashing management from five hundred to fewer than twenty-five. ISG began making money.
In September 2001, the Bethlehem Steel board showed its CEO the door, after little more than a year’s service, with a $2.5 million golden parachute. It gave the job to distressed-company expert Steve Miller, a man good at abetting bedridden firms but who had never set foot in a steel mill. After a look at the books, Miller offered to sell Bethlehem to US Steel, but Congress would not approve because the deal meant the government taking over Bethlehem’s legacy costs, put at $1.85 billion for unfunded pensions and $3 billion more for health and life insurance pledges.
Only weeks after hiring Miller, the Bethlehem board filed the company for bankruptcy. The benefits plans costs had been a severe strain, but so too was the low selling price of steel; the company could not assemble the revenue for all its obligations.
Wilbur Ross and his ISG stepped in again. Ross bid $1.4 billion for Bethlehem. He and the USW worked out an agreement by which mill job classifications would drop from thirty-five to five, wages would be pegged to productivity, and employees would retire on 401(k) participation plans, not company-funded, defined-benefit ones. A third of Sparrows Point employees took an early retirement package. As with the LTV Steel deal, this one required the federal government to take on the underfunded pension costs. So despite Congress’s initial efforts, Bethlehem’s pensions fell to the federal government’s Pension Benefit Guaranty Corporation (PBGC) anyway. The PBGC was not as generous as Bethlehem Steel had promised to be; it had its own calculations for dispensing pensions. Younger workers saw the most severe reduction in benefits, giving rise to lasting resentment. Moreover, Bethlehem had not paid $3 billion to fund health and life insurance plans for retired workers. A hundred thousand workers who had expected company-subsidized health insurance for life discovered they had none; they would have to buy their own. Bethlehem term life insurance policies for workers evaporated as well. Steve Miller pocketed nine hundred thousand dollars in 2002, plus more for benefits and tax liabilities. Fourteen executives pocketed twice their annual salaries before leaving. In 2003, Bethlehem Steel, founded before the Civil War and a lion of a company for much of the twentieth century, went out of business; its remaining plants were now ISG.
For a while, fortune smiled on the company. President George W. Bush had been persuaded to impose tariffs on imported steel. And worldwide demand suddenly doubled the three-hundred-dollar-a-ton price during 2003 and 2004. With the money that was coming in, ISG bought what was left of Weirton Steel to surpass US Steel as the largest integrated steel company in the United States. The Sparrows Point plant was much diminished—only two thousand workers toiled where once had been thirty thousand. The old plant that had once built American infrastructure and supplied Allied armies in Europe was a shadow of its former self. But management allowed far more autonomy, and, due to performance bonuses, the pay was good—it was said Ross wanted talent. For those who could report for work, the new arrangement was welcome.
But Ross was at heart a businessman, not a steelman. In 2005, he sold ISG to Lakshmi Mittal for $4.5 billion. Mittal had also acquired LNM Holdings, a steelmaker in such developing countries as Algeria, Poland, and the Czech Republic. From this combination, Lakshmi Mittal formed Mittal Steel, the largest steelmaking company in the world, coordinating the widely spread operations out of London, Lakshmi Mittal’s new home.
Nor were others idle. Nucor continued to expand and rise through the ranks of American steelmakers. Ken Iverson cut back his workload because of health issues in the late 1990s and died at age seventy-six in 2002. But Nucor remained true to Iverson’s vision of small scattered mills with skeletal support staffs and local autonomy. Besides building new plants, Nucor acquired small existing ones—both in the United States and abroad—and ventured into creating feed for its electric furnaces directly from iron ore. It embraced continuous casting, innovated, and prospered. In the new century, it rivaled and in some years overtook US Steel as the nation’s largest steel producer.
Abroad, China set its course on developing its economy as well as building for the Summer Olympic Games in 2008. Accordingly, it needed lots of steel—for roads, bridges, factories, office buildings, houses, cars, pipelines, airports, railways, and more. It built mills, imported iron ore from Australia to supplement its own, and set to making tremendous amounts of steel. In 2000, Chinese mills made 142 million tons, 540 million as part of its building program in the year before the Olympics, and 636 million in 2010, far outstripping the US at 112, 108, and 89 million tons during the same years. In 2013, world steel production was 1,770 million tons, 859 million produced by China, thus about half the world’s total. Japan came next at 122 million and the United States at 96 million, India at 89 million, Russia at 76 million, and South Korea at 73 million. Steel waned where countries had already built infrastructure and gained where infrastructure needed building, most notably in China and India.
Accordingly, American-owned and American-based companies slid down the list of the largest steelmaking corporations. US Steel and Nucor were the largest of these, each making 22 million tons in 2013 and ranking thirteenth and fourteenth worldwide. The largest steelmaking firm that year was the Mittal steel empire, which made 106 million tons, having numerous operations in the United States and more than fifty other countries. After Nippon Steel at number two, the remainder of the top ten largest steelmakers, except for POSCO in South Korea and JFE in Japan, were Chinese.
The American industry became more dispersed than in the heyday of Pittsburgh and south Chicago. Nucor scattered itself among small communities, from Alabama and Arkansas to Utah, California, and Washington. Mittal made steel in Cleveland, Chicago, Tennessee, and Texas. AK Steel, descended from the old Armco Steel, prospered in southwestern Ohio and with small plants in such places as Ashland, Kentucky, and Rockport, Indiana.
All the while, Mittal Steel had remained on the hunt. In 2006, it merged with Belgian steelmaker Arcelor, itself a 2002 combination of Luxembourgian, Spanish, and French steelmaking companies. The Justice Department would not approve the merger unless the combined Arcelor/Mittal sold Sparrows Point. A deal involving an American, a Brazilian ore producer, and a Ukrainian steel company fell through. In stepped Russian steelmaker Severstal, which bought Sparrows Point for the distressed price of $810 million, said to be only half its value. Severstal, created in 1993 as a private company out of a Soviet complex in the northern Ural Mountains, had recently grown by buying up an Italian steel company and already owned mills in Detroit and other US locations. Severstal said it would invest heavily in Sparrows Point, but poor market conditions shelved those plans. Severstal also sparred with US environmental regulators, and it prodded senior Sparrows Point employees to retire only to bring in lower-paid contract employees to replace them.
Severstal gave up on Sparrows Point in 2011, selling it, plus some other mills in Ohio and West Virginia, for $1.2 billion to the family-owned Renco Group, a New York City–based conglomeration of materials businesses. Renco did not deal with Sparrows Point for long either. Within a year and a half, it sold Sparrows Point for $72 million to Hilco Trading, a company dealing in liquidations. Hilco attempted to find a buyer for the plant but gave up and sold parts and equipment at auction in 2013. Nucor bought some machinery for removal.
Then, like much waterside and rail-side acreage where blast furnaces, steel furnaces, rolling mills, and even company towns once unloaded mountains of iron ore, coal, and limestone and, with the sweat of tens of thousands of toiling bodies, converted those materials to steel for building up a continent, Sparrows Point, where once iron flowed like water and men bent away from the sight of it, reverted again to a mere patch of land—home for birds, lizards, and bugs, its industrial work in the world finished. Sparrows Point, once the largest steel mill in the world, fell as silent as the marshland it was when Chester Arthur was president and Sioux Indians commanded the Great Plains.
