Saving Steel May Require French Lesson
Lynn Williams, the leader of the United Steelworkers union, was talking some months ago about the way France managed to shrink the size of its steel industry by 50%. “What they did, in effect, was retire every steel worker age 50 and over and provided him with 85% of his income for life,” he said. “They did that with a mix of public and private arrangements.”
The American steel industry, despite having cut capacity by 30% and its work force by more than a third in this decade, faces further reductions and the threat of more steel company bankruptcies. Could something like the French program be used over here?
We may soon find out, because legislation to facilitate steel plant closings while protecting the early retirement and health benefits of the employees will be introduced when Congress reconvenes after Labor Day. If the steel proposals become law, moreover, they could set a precedent for the U.S. manufacturing industry.
Sen. John Heinz (R-Pa.) has a bill that would tap the capital markets to pay the shutdown charges of surplus steel plants, somewhat as the government aided Chrysler in 1981.
Heinz envisions setting up a fund that would have two parts--federally guaranteed bonds plus warrants giving holders the right to buy stock at a later date. Shares in the fund would be sold to the public and the proceeds used to pay closure charges. Then, when the companies became healthy again--the presumption being that without the drain of money-losing plants they could be profitable--the government would be repaid and the warrants would have value. Details remain to be worked out. But steel analyst John Tumazos of Oppenheimer & Co. says the idea of helping steel has momentum in Washington.
Generous Benefits
Why is this happening? Because cutting capacity in a world burdened with more steel than it can use--20% of the world’s 1 billion tons of steel capacity is surplus--is easier said than done.
The cost of closing plants, although relatively minor in terms of machinery and bricks and mortar, is expensive in payments of continuing benefits for employees--$200 per ton, according to the American Iron and Steel Institute.
It would cost Bethlehem Steel, for example, $600 million to close 3 million tons of no-longer-useful capacity. Bethlehem and a lot of other companies in steel don’t have such money to spare.
Yet keeping unnecessary mills open is no answer, either. Hence, the many plans for public-private efforts, such as the Heinz bill.
There will be objections. Robert Crandall, a steel expert at the Brookings Institution, points out that taxpayers are being asked to support generous benefits negotiated between a union of $23-per-hour steelworkers and an uncompetitive industry. If union and managements negotiate fancy contracts, says Crandall, let them deal with the consequences.
Crandall makes a good argument, but it will be swept away if the steel industry suffers another bankruptcy like that of LTV a year ago, in which retirees’ benefits were stopped until Congress passed emergency legislation to restore them.
And beyond steel, there is the larger issue of the U.S. manufacturing industry, which will lay off or retire 7 million of its current 20-million work force as it continues to get efficient in the next decade. Unless there is money to deal with the human consequences of such change, efficiencies will be resisted and possibly prevented.
We’re not alone in facing change. The Japan Iron and Steel Federation says that 10,000 steelworkers were “seconded to other companies and assigned to other industries” last year. And we’ve been through it before. What is envisioned for manufacturing today is similar to U.S. aid to agriculture that, beginning with the soil bank program of the 1930s, has helped Americans adapt to economic change.
Williams, 63, the Steelworkers’ president since 1983, points out that the union’s retirement pensions, which are now the sole support of some towns near Pittsburgh, were “not meant to deal with the massive restructuring of a basic industry.” Something else is needed, and Heinz’s approach is a creative suggestion.
