Restructured Steel Industry Takes a Hard-Line Approach to the Union

A trip through the Monongahela Valley gives a picture of what the “restructuring” of the American economy in the 1980s is all about. Ten years ago, the aging mills of this valley were still producing vast quantities of steel--but not very efficiently. They were a symbol of a high-cost, featherbedded steel industry in which labor and management had united to seek protection from foreign competition.

Today, the Mon Valley looks like Atlanta after Sherman’s March. The vast steelworks that lined the banks of the river--Homestead, the Carrie Furnaces, Edgar Thompson, Duquesne, Clairton, Pittsburgh Works--are rusted and shuttered. The mills are gone, the workers are gone; but more than that, an entire culture is gone.

The new, “restructured” steel industry is leaner and more profitable. Steel employment has plummeted, from about 400,000 in 1980 to about 155,000 last year. At USX, the industry leader, the steel work force has fallen from 100,068 people in 1980 to 19,657 last year. Meanwhile, productivity has increased sharply. At USX, it now takes 3.8 man-hours per ton of steel shipped, compared with 10.8 man-hours in 1983. Five years ago, labor costs ate up more than half the sales dollar at USX; today, it’s less than 20%. Across the industry, steel executives are aggressively managing their plants and retrenching to their best facilities.

These changes are breathing life back into an industry that, 10 years ago, seemed to be dying on its feet. And the simple truth is that if the industry and the union had succeeded in their demands for protection from “unfair” foreign competition--if the Dick Gephardts of the day had triumphed, in other words--this essential cost-cutting might never have happened.

But there’s a dark side to restructuring, too. As the industry has gotten leaner, it has also gotten meaner. With the bosses determined to cut costs, labor-management relations at some companies are returning to the confrontational model of the 1930s. The big companies, which once bargained jointly, now confront the union individually and haggle over concessions.

Wages Have Fallen

Wages have fallen across the industry. And the jewel of steel’s labor relations, the no-strike “Experimental Negotiating Agreement,” disappeared, with USX taking a long and bitter strike in 1986 in an effort to cut costs.

Asked whether the old era of labor-management statesmanship has ended, J. Bruce Johnston, executive vice president for employee relations at USX, answers: “You betcha! It’s a lot healthier and more wholesome now. If you say it’s good labor relations to have my union counterpart embrace me in public, I say no, not if it’s driving me to bankruptcy.”

Johnston argues that restructuring has been good for morale. “Our employees watched the layoffs. They watched their brothers and uncles and neighbors lose their jobs. They understood . . . there is a labor market, and there is an international market for steel, and they’re going to have to compete. We told our employees: ‘Somebody’s jobs will have to go. Whose will they be?’ ”

In a sense, the union had it coming. Through the 1970s it was becoming increasingly obvious to anyone who looked that high labor costs were a big part of the industry’s problem. In 1950, steelworkers earned 15% more than the average manufacturing wage. By 1980, that premium had grown to 84%. Indeed, thanks to the elaborate income-maintenance provisions negotiated by the union, steelworkers on layoff in the early 1980s earned 23% more than the manufacturing average! Yet through the 1970s, the union kept pushing for more.

Most USW leaders seemed oblivious to the fact that they were driving the industry toward bankruptcy. “Nobody ever thought we would get hit like this,” said John DeFazio as he looked at the rusty ruins of the Jones & Laughlin Pittsburgh Works that runs along both banks of the Monongahela. The J & L North Side plant, where DeFazio was local union president during the 1970s, employed 5,500 at its peak. Now it’s down to about 800. The South Side plant, where 5,000 people once worked, now employs just 40.

Their World Collapsed

The human cost has been paid by tens of thousands of steelworkers and their families. A study by the Bureau of Labor Statistics of 219,000 metalworkers who lost their jobs between 1979 and 1983 found that less than half were employed as of January, 1984. A survey of 673 unemployed steelworkers in South Chicago revealed even sadder statistics: 38% had been evicted or forced to move because of reduced income; 32% had been forced to sell one or more cars; 21% hadn’t been able to send children to college because they couldn’t pay the bills. For these steelworkers, whose incomes had once given them a place in the middle class, the world collapsed in the 1980s.

The old days were symbolized for John Moody, the distinguished labor writer at the Pittsburgh Post-Gazette, by U.S. Steel’s annual Christmas Party for the press. It was held on the top floor of the William Penn Hotel, and journalists gathered from the steel towns of Pennsylvania and Ohio. There were barrels of oysters, steamship rounds of beef, dancing until early morning. And in the midst of this splendor were the barons of U.S. Steel, strolling with drinks in hand through the crowd. The reporters, in those days, couldn’t quite believe their good fortune. They could walk right up to the chairman of U.S. Steel and ask him any question they liked.

For the steel barons, there was no other world than Pittsburgh, no other industry than steel. Other industries might get the smart young men out of business school. They might get the marketing wizards and the cost-cutters. Let ‘em have them. Steel wasn’t for accountants who niggled and haggled. It was run by production men, former mill superintendents, most of them, who thought less about profits per ton than about sheer, raw tonnage.

When a steel man talked about a good year in those days, he talked about the industry shipping 100 million tons--not about earnings per share or return on investment. (By those measures, steel usually did abysmally.) In the old days, says Thomas Graham, the head of USX’s steel division, “there was a fascination with the sheer scale of things, as if we could pay shareholders with that.”

The steel industry was about power. When the steelmakers raised prices, the entire American economy stopped and shuddered. And a steel strike--heaven forbid--could bring the economy to a standstill. The metallurgical coal industry would shut down; the iron ore mines of Minnesota would close; the railroads that hauled the coal and iron would stop running, and so would the barge traffic on the lakes and rivers. And a few weeks later, the auto industry would have to stop making cars; and the appliance makers would stop production, and the fabricators, and the can makers, and the construction industry, and finally, the nation’s defense plants.

Pressure From President

And if the steel executives ever doubted that they were powerful--that their business was not, like most others, driven by the normal rules of profit and loss--the President of the United States would remind them regularly of political realities. America couldn’t afford a steel strike! So the steel companies were pressured, every three years, to reach a settlement with the union, regardless of what it cost.

One steel executive remembers sitting in the White House during the 1965 negotiations as President Lyndon B. Johnson threatened to bring down ruin on the industry if it didn’t drop its demand to peg wage increases to productivity. “I’ll bring this goddamn government down on you more ways than you can count,” LBJ said. The Justice Department would push for new antitrust legislation; the IRS would audit steel’s pension funds; the Army Corps of Engineers would refuse to build new locks for barge traffic. Faced with such threats, the industry promptly settled in 1965, paying nearly twice what it thought it could afford.

If the industry had been more competitive, it might have bargained harder with the union. But price competition was something of a naughty word in the steel business. It was something that foreigners did, and to a generation of American steel executives--who sold steel according to a rigid set of list prices--it seemed almost unfair. The American steelmakers changed their prices in lock step. One company would announce, say, a 5% price increase, and wait anxiously to see whether U.S. Steel followed the lead. If it did, then a new set of list prices would be published by each of the companies--with identical quotes across the industry for each product. The industry assumed that it could pass its ever-rising costs along to consumers.

The only threat to this cozy, uncompetitive world came from abroad, and by the late 1960s, labor and management recognized that foreign competition was the enemy.

The United Steelworkers Union, in those days, was the Cadillac of the union movement. It was huge, with well over a million members; it had the best political organization in the Northeast and Midwest, and it was clean. Unlike the thugs who ran the Teamsters, the USW was run by people like Arthur Goldberg, who went on from being USW general counsel to become a cabinet official and Supreme Court justice. The union brass traveled first-class on airplanes; they stayed in grand hotel suites during their conventions in Las Vegas and Miami Beach; they were courted by Presidents.

“Beginning with Arthur Goldberg, the union saw itself as playing a quasi-management role,” says Ben Fischer, a former top official of the union and now director of the Center for Labor Studies at Carnegie-Mellon University. Bernard Kleiman, the union’s general counsel, explains the cooperative ethos: “In the old days, we had an understanding (with the industry) that we would try not to litigate problems.”

The labor-management partnership bore fruit in the 1973 Experimental Negotiating Agreement in which the union gave up its right to strike in exchange for guaranteed wage increases. The agreement symbolized, above all, the joint alliance against foreign competition. Both sides hoped the no-strike pact would ease the fears of domestic steel buyers about interruption of supplies--and keep them from dealing with foreign mills. Management also saw it as a way of gaining the union’s political help in lobbying for trade protection.

What quickly became clear was that the industry would need protection to afford the cost of the negotiating agreement. The first contract negotiated under the pact, in 1974, was the richest collective bargaining agreement in the industry’s history. It raised steel’s employment costs by more than 40% during the three-year contract. The next contract, signed in 1977, boosted employment costs by about 30% more.

Both labor and management jointly beseeched Washington for trade protection to keep their high-cost industry afloat. Their lobbying paid off. Robert Crandall, an economist with the Brookings Institution, notes that steel has enjoyed some form of trade restraints for nearly 20 years: voluntary restraint agreements from 1968 to 1974, trigger prices from 1977 to 1982 and renewed VRAs from 1974 to the present. But these measures never seemed enough.

But the protectionist schemes of the 1960s and ‘70s did provide enough relief to keep the industry from taking the radical measures that would cut costs and boost productivity--but not enough to generate the profits needed for modernization and expansion. Indeed, Crandall notes that the companies that invested heavily in costly new facilities during the past decade are now the ones in greatest financial difficulty.

The industry began to collapse of its own weight in 1977, when Bethlehem reported huge losses and closed some of its high-cost facilities. Within a few months, a hurricane was sweeping through the industry. By the time the shakeout finally ended last year, 24 steel companies had disappeared in mergers or declared bankruptcy, including some of the grand old names of steel: Jones & Laughlin, Kaiser, McLouth, Mesta Machine, Republic, Sharon, Wheeling-Pittsburgh, Wisconsin, Youngstown Sheet and Tube.

Tom Graham remembers that when he joined USX in 1983, “we were losing money by the bale. We were a Titanic at that moment.” Graham moved to cut losses by closing plants. His philosophy: “You have to get down to the things you’re good at, that the market wants to buy. We were good at making great big forgings--propeller shafts for ships and things like that--but there was no market for them. So a lot of that had to be cut adrift. . . . In this business, the key is to structure yourself so you don’t bleed to death when the market is down.”

By the time Graham was done, USX was a much smaller company, with a much narrower range of products. This year, the company has two bar mills, down from 11 bar and rod mills in 1982; it has one plate mill, rather than five; it has one structural mill, rather than four; it has two coke-making plants, rather than six. Steel-making capacity has fallen from 33 million tons in mid-1983 to 19 million tons today.

The price of this restructuring is that it destroyed the old cooperative system of labor relations. The industry decided in 1980 not to renew the expensive Experimental Negotiating Agreement no-strike pact. Two years later, the industry demanded--and won--wage cuts of roughly 10%. The next element of the old regime to go was coordinated industrywide bargaining. In February, 1985, as some crippled steel companies were receiving special concessions from the union, the industry’s chief negotiator, J. Bruce Johnston, sent a memo to USX Chairman David Roderick: “It seems to me that coordinated bargaining is dead, and we need only to decide when it’s to U.S. Steel’s advantage to hold a short funeral and release the death certificate.” Three months later, the industry dissolved coordinated bargaining, leaving each company free to cut the best deal it could with the union.

The weakest companies opted for cooperation in the 1986 negotiations, and opened their books to the union in an effort to convince them of their dire need for wage reductions. USX opted for confrontation, refused to open its books and took a six-month strike to win the wage cuts and manning reductions it regarded as essential. Confrontation seemed to pay off for USX, a point that hasn’t been lost on the rest of the industry.

Steel executives today speak in a tone of voice that hasn’t been heard in steel for a generation. “The international union is a spent force,” one executive said. “They’ll end up like the building trades!” That sort of talk may play well on Wall Street, but it may trigger an eventual backlash. For it carries a distant echo of the era of labor-management strife of the 1930s, which brought the United Steelworkers Union into being in the first place.