An abandoned factory in central Pennsylvania, 1989
It was called the birthplace of "Big Steel" -- the Edgar Thomson Works in Braddock, Pennsylvania. So when U.S. Steel closed the doors of E.T., as the plant was called, it was a foreboding sign that something was terribly wrong with the steel industry. In fact, something was wrong throughout America's industrial heartland in the early Eighties. For a century, American industry had been the envy of the world. The steel industry provided nearly half a million blue-collar workers a ticket into the middle class, right alongside the miners who worked in the iron-ore pits of the Mesabi Range in Minnesota and elsewhere. For many of these workers, employment in the mine or factory was a family tradition; one's father and uncles and perhaps even grandfather had put in their forty years at the same place. A job meant a lifetime's security, a house, a family that could be well-provided for. And this individual prosperity meant prosperous times for communities like Youngstown, Ohio and Hibbing, Minnesota and Flint, Michigan. But in the early Eighties, one after another mill, factory and mine was shut down, tens of thousands of workers were laid off, and dreams were shattered.
The problems began in the auto industry. The Big Three automakers -- Ford, Chrysler and General Motors -- built 9.3 million vehicles in 1978. Three years later they built only 6.2 million. Their losses were the worst in the industry's history. There were two culprits:a severe nationwide recession and cheaper imports from Japan. (See "Car Wars," Material Things, Set 1.) Between 1978 and 1981, 300,000 auto jobs were lost. With fewer cars sold, fewer parts and less steel was required. By the end of 1981, Michigan's unemployment rate stood at nearly 13%, while the national average was 8%. Business and personal bankruptcies tripled. Mortgages went unpaid, medical bills mounted, soup kitchens proliferated. Laid-off workers were hard-pressed to find any kind of employment. Living in the Rust Belt proved impossible for many, who packed up their families and migrated to the Sunbelt. At times there seemed to be as many Michigan license plates as Texas ones on the streets of Houston, only one of several southwestern cities that boomed in the first half of the decade.
Big Steel suffered similar problems as the Big Three automakers. Foreign competition was stiff, and the wages required by unionized employees made American steel too costly to compete -- in 1982 employment costs per hour for an American steelworker was $23.99, compared to $13.45 in West Germany, $11.08 in Japan, and $2.32 in South Korea. Many mills and fabricating plants had outdated equipment. As the 18-month recession of 1981-82 drew to an end, nearly 50 percent of the industry's 450,000 workers had been laid off, and production hovered at around 30% of capacity. In 1973, American steelworkers had produced 150 million tons; ten years later the U.S. Commerce Department reckoned only 80 million tons would be needed.
Believing it was necessary to get employment costs down, the steel producers attempted to persuade the United Steelworkers of America (USW) to accept a new three-year contract with reduced wages and benefits. USW members were suspicious of the producers, fearing they would simply use any savings that would accrue from the new contract for diversification into non-steel fields rather than making capital investments to update mills. (In 1982, U.S. Steel was much criticized for purchasing Marathon Oil.) The steelworkers rejected the offer. And as their current contract's term was about to expire in mid-1983, they threatened a nationwide walkout. It would be the first USW strike in a quarter of a century -- if it happened. General Motors warned USW chief Lloyd McBride that unless the union settled their differences amicably with management, it would buy its steel from Europe and Japan. Many other steel users expected to do the same. Glutted domestic markets were forcing foreign steelmakers to sell their product as cheaply as possible overseas. G government subsidies and the fact that their employment costs were less than half the U.S. rate made it possible for them to undercut the price of American steel. In addition, more and more foreign producers were using "continuous casting" techniques that were far more cost-efficient than the labor-intensive processes used by American firms.
The USW gave in; in March 1983 the union negotiated a new 41-month contract with the seven producers that made up Big Steel. The contract called for a 9% reduction in wages and benefits. In exchange, the union received better supplemental unemployment terms for members who were laid off, and the companies promised to use any savings that stemmed from the new contract to rebuild the industry. Realistically, though, the seven companies could expect only modest savings -- an annual cost reduction of $285 million -- thanks to the new contract, and that was scarcely enough to purchase a single new slab caster, much less revamp entire plants. Big Steel's only hope lay in the recovery that was getting underway in 1983.
The steelworkers' union didn't want to rely solely on an economic recovery. USW leaders pressured the federal government to stem the flow of cheap foreign steel into the American market. It seemed an uphill battle, with a president in the White House who made no bones about his commitment to free and open trade. At the Williamsburg economic summit with leaders of seven other industrialized nations, Ronald Reagan pledged to dismantle protectionist barriers in order to spur the global recovery. But, to the surprise of many, the Reagan administration imposed new tariffs and quotas on imports of specialty steel from twenty nations, including Japan, West Germany and Britain. American steelworkers hailed the move, even though it meant their counterparts in other nations would suffer. A spokesman for the West German Iron and Steel Association worried that American protectionism " would cost possibly thousands of steel-related jobs" in his country. As it turned out, steel industry spokesmen were calling for still tougher quotas on imports a year later. They still could not compete with foreign product. By Spring 1984, imports had taken more than 25% of the American domestic market. And with 200 million tons of overcapacity in the world steel industry, finding alternative markets was difficult, if not impossible, for U.S. producers.
To survive in the new global economy, American steel companies had to merge and diversify. U.S. Steel, the nation's largest producer, invested in energy, chemicals and real estate, so that by 1983 steel accounted for only 30% of the company's revenues, with oil and gas accounting for 50%. U.S. Steel could afford, then, to announce that it would close all or parts of over 70 operations in 13 states in 1984, cutting overall steelmaking capacity by nearly one-fifth, laying off 15,000 employees, and pocketing a $1.2 billion pre-tax write-off against earnings. Meanwhile, LTV's Jones & Laughlin Steel subsidiary (the third largest American producer) and Republic Steel (the nation's fourth largest) merged in 1984. LTV Steel, as the concern would thereafter be called, unseated Bethlehem Steel as the second-largest producer in the United States. LTV planned to consolidate and streamline; inefficient operations would be shut down and the firm would concentrate on higher-profit product like flat-rolled, tubular and stainless steel.
By the end of 1984 the Commerce Department calculated that U.S. steelmakers would earn about $200 million that year. It wasn't much, but certainly preferable to the $3.7 billion lost in 1982 and 1983 combined -- the worst years for American steel since before World War II. The "Reagan Recovery" was in full swing. The nation's economy was robust. But the steel industry did not share in the good times, leading the Reagan administration to negotiate a program of voluntary import quotas designed to reduce the foreign share of the domestic steel market from 30% to 18%. It was predicted that this might put a third of America's idle steelworkers back to work. But experts knew this would not solve the industry's long-term problems. Steel companies needed to invest in capital improvements to remain competitive -- but how could they when they were losing money? And the global steel surplus would just not go away; even as the U.S. and Europe reduced capacity by 50 million tons, new Third World producers eagerly stepped in to take up the slack. At home, mini-mills that produced stainless steel and specialty products by melting scrap metal in electric furnaces gobbled up 20% of total U.S. steel production. Chase Econometric's John Jacobson warned that steelmakers had to face economic reality. "Industrial nations are continuing to shift away from heavy manufacturing to technology and service industries."
By the decade's end, the streamlined American steel industry was seeing a turnaround. By 1987 USX was operating its mills at 86% capacity, while Armco Steel's plants were operating at 95%. This was the case throughout "Smokestack America" -- in 1988, manufacturers were producing, overall, at 83% capacity -- a rate not achieved since 1979. Much human suffering had attended the transformation of steel and other heavy industries in the Eighties. But that transformation was inevitable, not to mention symptomatic of America's adaptation to the new, high-tech global economy. Throughout the industrial Midwest, abandoned mills and mines still stand as dusty artifacts of an era that had run its course.
The Story of Weirton Steel
In 1982, when National Steel announced that it would no longer make capital investments in its Weirton, West Virginia plant, the 6,000 men and women who worked there feared that this was just the first step towards shutdown. They took matters into their own hands -- and negotiated a $386 million deal by which they would buy the plant from National through an employee stock ownership plan. Weirton Steel became the nation's largest employee-owned business. The new company reported a $9.7 million profit for the first quarter of 1984 -- the first profit shown by the mill since 1981. To make it happen, though, employees had to take a 20 percent cut in pay and benefits, and accept a six-year freeze on wage increases. Even though the mill was saved, Weirton still faced high unemployment, and saw its young people leave town in search of greener pastures because they could no longer count on f inding a lifetime of security at the plant, as their parents had done. In Weirton, as was the case all over the Rust Belt, the steel industry -- and the community it supported -- would survive. But things would never be as they once had been.
Newsweek, 10 January 1983, 14 March 1983, 21 March 1983, 18 July 1983
Time, 7 December 1984, 24 January 1983, 28 March 1983, 9 January 1984
U.S. News & World Report, 15 June 1981, 7 May 1984, 10 September 1984, 3 December 1984, 30 November 1987, 24 October 1988