Squandered

A very short history of US steel making after WWII.

How the U.S. Squandered Its Steel Superiority

In the early 50’s the Europeans were rebuilding their steel industry with new technology:

“The cost of building steel mills using the basic-oxygen furnaces was 40 to 50 percent lower than conventional open-hearth factories; operating costs were 25 percent lower, though some studies suggested even greater cost savings.

But it was the productivity gains associated with the new process that should have really raised eyebrows. One factory that made the shift could produce 40 tons of steel per hour using the open-hearth process, but after installing basic-oxygen equipment, it managed to quadruple that figure.

Unfortunately, Big Steel was too proud to notice Europe gaining ground. In a typical advertisement from the era, U.S. Steel claimed it was a company “where the big idea is innovation.” But this claim — much like so many of the braggadocios claims of today — could not hide a more disturbing reality.

Indeed, throughout the 1950s, as Europe’s steelmakers built new factories around the basic-oxygen process and simultaneously demolished its remaining open-hearth furnaces, Big Steel made endless excuses. Representatives of the Big Three — Bethlehem, U.S. Steel, and Republic — repeatedly claimed that the jury was out on the new method, all evidence to the contrary.”

And by the 60’s little mammals were nipping at the heels of the Big Steel dinosaurs. It’s quite ironic that one of the biggest corporatists now whining for protection is Nucor, whose success was profiled by Clayton Christensen in Innovator’s Dilemma (2011).

Nucor and others started out making re-bar, which is easy. Bethlehem, U.S. Steel, and Republic saw no money in re-bar, and let Nucor have the business. The upstarts climbed the market chain by recycling scrap steel (with “mini-mills,” which don’t use blast furnaces), and eventually achieved continuous strip steel casting; the high margin product. They ate Big Steel’s lunch.

“But there’s a final twist to this tale that highlights the absurdity of Trump’s strategy. In the 1960s, a man named Ken Iverson took over a conglomerate that acquired a stake in the steel business that became Nucor. Iverson then bet the firm’s future on making steel using the electric arc process, building the first American facility in 1969. It began growing at an exponential rate, competing rather effectively with foreign producers, to say nothing of other American producers.

As other steel producers begged for protectionist trade policy, Iverson mocked the idea. In an interview in 1986, Iverson noted that protectionist measures already instituted hadn’t had the desired effect. “As soon as prices began to rise so that the steel companies began to be profitable, they stopped modernizing,” he said. “It’s only under intense competitive pressure — both internally from the mini-mills, and externally from the Japanese and the Koreans — that the big steel companies have been forced to modernize.””

Nucor is now the largest US steel maker. They used to understand the definitions of innovation, capitalism and competition.

Lack of innovation and unwillingness to compete – sustained by protectionism – is what toppled the big guys from overwhelming superiority. Maybe if Reagan hadn’t ordered “voluntary restraint agreements” in 1984 to reduce steel imports, and Dubya hadn’t put steel tariffs in place in 2002, US steel companies would by now have had an epiphany.

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