It Took Time, but U.S. Steel Learned Lesson
In Pittsburg, Calif., last Thursday, the U.S. Steel division of USX Corp. and its partner, Pohang Steel Co. of South Korea, dedicated a parable for our times.
With speeches hailing the globalization of industry from USX Chairman David M. Roderick and Pohang managing director Young-soo Han, the joint venture known as USS-Posco Industries launched a refitted steel mill equipped with the very latest in industrial technology.
And there was evident pride among the 1,100 U.S. employees who would work the new machines. “There is nothing like this anywhere in the world,” said Harold Dominguez, who helps oversee a complex of five giant roller machines that press steel into thin sheets.
Dominguez had been sent to Quangdong, South Korea, to train on the equipment. His co-worker Bill Medeiros had been sent to Japan and South Korea. All told, 150 Pittsburg employees were sent to West Germany, France, Japan and South Korea to train on up-to-date equipment--which told them something about the good old U.S.A. “We saw how far behind was the American machinery we were working on,” says Medeiros.
How, you may ask, did we get to the point where American employees of U.S. Steel--the firm organized by J. P. Morgan himself in 1901--had to be sent abroad for training so they could work a mill half-owned by a steel company set up only 20 years ago by the Korean government?
The Pittsburg plant’s history can tell you the answer, as well as much else about industrial competitiveness--how things were done in the past and how, happily, they’ll be done differently in the future.
Hurt by Imports
Pittsburg was an old U.S. Steel facility that supplied the fruit and vegetable canners, office equipment makers and construction industries of growing California--some of its steel built the Oakland Bay Bridge.
But in the 1970s, it began to lose out to Japanese steel imports. Soon Pittsburg could only make the bottoms and backs of Steelcase desk drawers, explains E. A. Roskovensky, who runs the plant today. The mill couldn’t supply visible parts of a desk because its equipment couldn’t produce consistent-quality steel, and Steelcase didn’t want customers thinking their desks were warped. By 1984, when imports had taken 52% of the market, the choice of close down or fight back had to be made. Roderick, to his credit, opted for battle, signing up Pohang as a partner.
The two companies have invested $430 million to outfit the mill with the latest in steel-making equipment from Mannesmann of West Germany, Hitachi of Japan and others. The plant’s computer-controllers are American, from General Electric and Honeywell, but the steel equipment is from overseas.
Why? Because such equipment is no longer made in the United States, the result of two decades when other countries kept building or modernizing steel plants, but nothing was built here. “In steel, the state of the art is advanced by building a new plant and we didn’t have the money to build a new plant,” says U.S. Steel President Thomas Graham.
Fell Further Behind
Other countries built steel mills to industrialize their economies, as in South Korea, or to provide employment for their citizens, as in Europe. And all nations counted on the U.S. market to absorb the resulting surplus, Graham explains. U.S. industry didn’t make such uneconomic investments, he says, and therefore spared American taxpayers the burden of subsidized steel plants that foreign taxpayers are now complaining about.
But a price was paid, nonetheless. The U.S. industry refrained from unwise expansion, to be sure. But it also neglected modernization of its old plants, relying instead on wringing production from outdated equipment and arguing for cutbacks in labor costs to become competitive. But such efforts were no match for the cost savings and quality improvements achieved by new equipment--so the Americans fell further behind their foreign rivals.
It was a curiously selective investment policy: In years when investment bankers and “junk bond” geniuses made millions of dollars from deal-making, there was no money to improve productive equipment.
Sins of omission have consequences. The pride and education levels of America’s work force suffered. If industry keeps working with outdated equipment, there is less need for the math and verbal skills that modern computerized machinery demands. And grunt labor turning out poor quality steel doesn’t command the higher pay that goes with productive equipment, either.
Something else has been lost, as well. An industrial base has disappeared, as equipment suppliers to heavy industry have gone out of business because there were no orders.
Which is untimely because U.S. demand for steel equipment is now rising. Capacity has been cut to the point where American steel is profitable and imports--affected by currency shifts--are losing out. The Pittsburg plant, now the low-cost steel supplier in California, will demonstrate that there’s a payoff to investments in making better steel more efficiently.
More Improvements
And other steelmakers will follow up in years to come, says Chairman Roderick of USX. “The American steel industry will pour its profits into plant improvements,” he says.
Great news, but the curious prospect today is that progress will mean more orders for Mannesmann and Hitachi, and more study abroad for U.S. workers--with the whole process, predictably, being hailed as a wondrous example of the globalization of industry.
To be sure, the glass is half full, not half empty: Steel mills and jobs are being upgraded, and the pride of the American work force is being restored. But somehow there’s a nagging question of whether quite so many Americans had to suffer before U.S. industry learned some simple lessons.
