Even a casual spectator of the steel industry couldn't have been surprised by United States Steel Corp.'s recent announcement that it will shut down part or all of 15 plants, dismissing about 13,000 workers in the process. The wonder is that the closures didn't come sooner.
To some extent, U.S. Steel's actions simply represent a small part of a much larger story: the realignment of the world steel industry. There is now a huge global glut (capacity exceeds consumption by about one-fifth), and demand is growing most rapidly in developing countries, which naturally want to expand their own industries.
In this situation, companies in mature markets are losing export outlets -- this applies mostly to the European Community -- and also facing larger imports from new producers, whose plants often initially exceed domestic demand, and from each other.
The American market especially is one of low growth or no growth, and U.S. firms naturally resent any steel from abroad. Although executives talk of 2 percent in the 1980s, that sounds like a fantasy. Last year U.S. consumption totaled 119 million tons, still below the 1973-74 peaks. More important, automobiles -- representing about one-fifth of total steel use -- are getting smaller and lighter.
Viewed against that panorama, steel companies and union are victims of forces larger than themselves, but it still matters how they react. Unfortunately they have reacted with understandable -- but disastrous -- shortsightedness. If anyone is responsible for aggravating the industry's current ailments, it is steel executives and union leaders.
Although they continue to disagree on some issues -- most notably worker safety -- they have banded together on economic matters. In 1974, the United Steel Workers of America and the industry (most companies bargain jointly) initiated a no-strike bargaining procedure providing a minimum 3 percent annual "productivity" wage increase, plus cost-of-living adjustments and other benefits.
The reasons for the alliance are plain enough. Both had identified imports -- not each other -- as the chief adversary. Strikes pushed domestic customers towards overseas suppliers, and the ties remain even after the strike threat has passed. By the early 1970s, imports regularly were capturing 12 percent to 17 percent of U.S. sales. The steelworkers saw imports jeopardizing their records as one of the most successful industrial unions. Since the end of World War II, steel wages and benefits regularly have risen faster than those of most other workers. For the companies, imports threatened to disrupt their loose oligopolistic control over prices, and, given the rising costs of meeting government pollution requirements, price control was more important than ever. But the firms realized they needed the union's political clout to have any impact in Washington.
Measured by wage and price increases, the alliance has succeeded remarkably. A typical steelworker now makes $20,000 a year; "real" wages (after adjustment for inflation) have risen about one-third since 1967. As for prices, they jumped 50 percent between 1974 and 1978, while all industrial commodities, including steel, rose only 36 percent; incidentally, since 1947, steel prices have risen by a factor of 5.5 against a factor of 3 for other industrial commodities.
But in many other ways, the alliance boomeranged. The 3 percent "productivity" factor is an exaggeration at best and a total fiction at worst. Productivity in 1978 -- a good year for steel output -- was still below the boom years of 1973 and 1974. Consequently high costs have eaten most of steel's high prices, leaving little for profits.
In addition, the high prices probably drove some customers to other materials and beckoned imports that now are officially discouraged by the government's "trigger price" mechanism. Stripped of technicalities, this aims at setting minimum import prices. In the first nine months of 1979, imports were down about one-fifth from 1978 and were running at about 14 percent of U.S. consumption. o
But none of this really has reached the industry's basic problems. Steel plants vary enormously by age, size and location. Many of the older and smaller plants can be competitive only if their labor costs are substantially below those of larger, more modern plants. The union naturally regards industry-wide wage patterns as sacrosanct and, even when it is willing to make a rare exception, existing layoff and pension benefits are so high that the rank and file may spurn such accommodation.
That is precisely what happened at one U.S. Steel location, where the company proposed (and the union endorsed) holding down wage increases below the national pattern as a condition of keeping the plant open.
This offer's rejection illustrates the intensity of expectations that have driven the industry along its current, unhappy course Government policy, fashioned by the companies and the union, reflects their demands and consequently, fosters high prices, rewards inefficiency and encourages irresponsible labor settlements.
Put bluntly, the industry needs higher profit margins to justify modernization (and provide the funds), but it needs to get the higher prices. This is especially true in the future. Steel demand depends heavily on consumer durables -- big-ticket appliances in addition to automobiles -- and industrial investment; both individuals and businesses can postpone such spending easily. With high interest rates and stagnant consumer income, the steel industry needs to stimulate demand for the final products that use steel.
Keep wage increase down, keep price increases down. Next year, there will be a new contract. Will it happen? Probably not. The union and companies probably will make another assault on imports and achieve some small results, while possibly igniting a major trade dispute with our allies. But the basic problems will remain.
Slowly, workers and managers will learn that when they get together to gouge the public, they end up gouguing themselves, too.