Troubled steel -- III How to save Sparrows Point and other troubled mills

Mark Reutter

April 29, 1992|By Mark Reutter

GENEVA STEEL was considered a "loser" when it was cast off by USX, the nation's largest steelmaker, to a group of Utah businessmen in 1987. Equipment was decrepit, customers unhappy, employees openly rebellious.

Today the plant near Salt Lake City is not so easily dismissed. Geneva was one of two integrated steel companies to report a profit in 1991 and has won praise from buyers and suppliers alike. What's more, with 2,800 well-paid, unionized workers and $400 million a year generated by local purchases and secondary employment, the plant contributes to a balanced Utah economy.

Over the last decade, a pattern has emerged in the steel industry. Plants that have shut are typically units of the Big Steel companies, while plants that have survived have broken away from the corporate apron strings.

"Small plants are more flexible; it's a different mind set," says Dick Clayton, Geneva's executive vice president. The Utah mill found a way to prosper even without the high-tech equipment of some steel companies.

One important element in Geneva's rebirth was restoring trust between management and labor. Workers represented by the United Steelworkers of America agreed to work-rule changes ("I wouldn't call them concessions," Mr. Clayton says) that streamlined production. The new management also met with local suppliers and community groups to discuss ways to lower plant costs and increase working capital.

Equal effort was paid to targeting new markets. Prior to the sell-off, Geneva was a "captive" supplier for USX, shipping more than half of its product to the conglomerate's plant in Pittsburg, Calif. Now as much as 30 percent of yearly output goes east of Denver into the Midwest, up from nothing under USX control. In addition, the firm tapped into the export business and has shipped more than $150 million in coils and pipe to customers in Mexico, Japan and Argentina.

"We originally viewed Geneva as a reasonable business, not a home run," Mr. Clayton says. "Then we found a lot of market niches and moved into them faster than the USX people would ever have dreamed of."

The success of Geneva and other breakaways (known in industry parlance as "reconstituted" mills) has revived the argument that Big Steel is still too centralized and bloated for today's fiercely competitive market.

Most of today's mills were once independent companies, with owner-managers, community ties and often vigorous bouts of price competition. Then came the great merger movement. U.S. Steel, predecessor of USC, leapt to gianthood not by satisfying customers or spurring technology, but by the machinations of J.P. Morgan, John D. Rockefeller and other turn-of-the-century financiers.

At the time of its formation in 1901, U.S. Steel was the world's first "billion-dollar corporation" and represented the greatest aggregation of business properties in history. But U.S. Steel didn't actually operate anything; instead, it held the stock of a phenomenal number of other companies -- 190 in all -- that manufactured everything from railroad bridges to steel hoops. As Louis Brandeis noted in his book, "The Curse of Bigness," the purse strings were pulled not by local businessmen responding to local conditions, but by the House of Morgan in far-removed Wall Street.

Charlie Schwab, a U.S. Steel alumnus, built the No. 2 producer, Bethlehem Steel, in a similar manner. He gobbled up every major steel plant east of Pittsburgh, including Sparrows Point, then the biggest industrial employer in Maryland, along with coal mines, steamboats, derricks, machine shops, railroads and real estate. Republic Steel and Youngstown dominated Ohio's Mahoning Valley until they were merged into LTV, the nation's third-largest producer.

For years, Big Steel's sheer bulk and tight grip on a vital product insulated it from the workings of the marketplace. U.S. Steel and Bethlehem could announce price increases every year secure in the knowledge that no individual buyer could force a change. The illusions bred by such power created a smug, insular and ultimately self-destructive culture.

Steelmaking became infested with bureaucracy. Corporate advancement demanded conformity -- and many hours on the company golf links. New ideas were discouraged. Resentful workers squabbled with tough-guy managers who played office politics with aloof senior executives. Waste and inefficiency prevailed.

Only in the 1980s, under traumatic stress and huge social dislocation, did these attitudes begin to crumble. But only in part. The big companies were willing to amputate mills in Chicago, Youngstown, Cleveland, Buffalo, Pittsburgh and Birmingham to protect their own fiefdoms.

Once again in the current downturn, senior officers at Bethlehem and USX solemnly say the only answer is "restructuring" -- the shutdown of more divisions, more mines, more mills, with thousands of employees to be sacrificed and hundreds of suppliers left dangling.

The Utah mill was on the same downward slope five years ago when local business people, employees, suppliers and community leaders united to take responsibility for their industrial fate. The lesson of Geneva Steel, says Dick Clayton, is that communities no longer can depend on big corporations to keep them alive. It's a lesson that industrial centers like Baltimore need to learn before the last steelworker punches out.

Mark Reutter, a former Sun reporter, is author of "Sparrows Point: Making Steel," a history of Baltimore's Bethlehem Steel plant, and many articles on business and labor. This is the last of three parts.

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