On October 15, Big Steel became a museum - as in Smithsonian. A case study on the effects of globalization.
On a chilly winter morning in the Lehigh Valley in eastern Pennsylvania, the buildings of the Bethlehem Steel plant loom out of the fog like the ruins of an abandoned civilization. The five towering blast furnaces, which produced more than 8,000 tons of molten iron a day back in the 1960s, turned cold in 1995. Sunlight filters weakly through the tall windows of the No. 2 Machine Shop, a hall a third of a mile long that used to be the largest machine shop in the world.
The fall of Bethlehem Steel, which declared bankruptcy on October 15, has become a parable of industrial decline. At its core, however, the story of Bethlehem is simply that of the double-edged nature of global trade: the inevitable transformation of America even as American companies transform the world, the imperialist invaded. Like U.S. Steel and LTV, Bethlehem couldn't adapt to a new environment of cheap foreign steel and modern technologies. Saddled by corporate arrogance, outmoded factories, and swollen labor costs - and "protected" by backward-looking bureaucrats - an American icon couldn't compete.
Although US demand for steel continues to grow at close to 40 percent a year, the domestic industry has lost some 350,000 jobs since 1979, and 27 companies have filed for bankruptcy since 1998 (including 12 in 2001 alone). Scrambling US steelmakers invested almost $50 billion during the past 20 years to build new plants and modernize old ones, but that hasn't been enough. The Asian economic crisis of 1998 sent a cascade of excess steel to American shores, and the strength of the dollar made those imports too cheap to resist. More recently, new producers such as Ukraine, India, and China - now the world's largest - further swamped the market. There's something on the order of 230 million tons of excess steelmaking capacity in the world, a glut that has driven prices even lower. Now Big Steel accounts for just 42 percent of US steel consumption, while a nimbler breed of minimills supplies 36 percent and foreign companies the remaining 22 percent.
Meanwhile, the Bethlehem plant is slated for a very postindustrial rebirth as Bethlehem Works, an entertainment and commercial complex. In a move fraught with symbolism, the vast machine shop of this monument to 20th-century manufacturing will become the home of the National Museum of Industrial History, an affiliate of the Smithsonian.
The glory days of Bethlehem Steel can be traced to a technical innovation: the continuously rolled wide-flange steel construction beam, also known as the H-beam. Before the company perfected this product, in the early 1900s, it was just one of dozens of iron-and-steel mills strung along the riverbanks of Pennsylvania and Ohio. By World War II, Bethlehem Steel was a giant. Besides turning out most of the ships that fought in the Pacific, the company produced most of the girders that created the New York City skyline, the Golden Gate Bridge, and countless other American icons.
Untroubled by competition, Big Steel invested $10 billion in new facilities in the 1950s; those gigantic open-hearth steel furnaces pushed production to 117 million tons a year - about 7 million of which were shipped overseas. (In 2000, by comparison, Big Steel produced about 50 million tons.) Imports, meanwhile, hovered around 1 million annually until late in the decade, when they began a slow, almost imperceptible climb.
In 1972 - the year Bethlehem Steel opened its shiny new corporate headquarters, Martin Tower - imports hit a record high of 18.2 million tons. US makers continued to pour hundreds of millions of dollars into sprawling integrated plants like Bethlehem's Burns Harbor, Indiana, facility - the last integrated plant built on US soil. With so much invested in old systems, Big Steel had little choice but to make only incremental upgrades to its technology. Bethlehem, like other domestic firms, was slow to shift from open hearths to basic oxygen furnaces. Meanwhile, the steelmakers in Western Europe and Japan were already building state-of-the-art plants. In the '70s, the first so-called minimills opened in Europe and then the US, heralding the rise of producers that used electric arc furnaces to make steel out of scrap metal - a faster and cheaper process. Steel historian Christopher Hall calls the period from 1959 to 1974 "the wasted years," when the US industry invested millions in technology that was already obsolete.
It wasn't only technology that allowed top foreign companies like Germany's ThyssenKrupp and Japan's Nippon Steel to grab market share from Big Steel. US producers were also hurt by the failure of both labor and management to face the new realities. After years of strikes - culminating in a devastating, industrywide 116-day walkout in 1959 - management capitulated, buying labor peace with a series of concessionary contracts promising automatic wage and benefits increases that cripple the major US steelmakers to this day. Even in bankruptcy, Bethlehem Steel pays out some $180 million a year in retiree health care (each working employee supports nearly six retired ones), and it's not alone: In December, a coalition of steel companies asked the government for a $13 billion bailout to cover retiree costs.
The turn to Washington is nothing new. Beset by high labor costs, low productivity, and the rise of the minimills, the industry has increasingly petitioned the government for relief from alleged dumping by overseas producers. Thanks to lots of lobbying and the ever-potent combination of nationalism, protectionism, and industrial nostalgia, they still find a sympathetic ear - American import barriers are among the world's highest.
But such measures are as outmoded as the messy coke ovens at the Bethlehem plant: Big Steel is living on borrowed time. Small, flexible domestic competitors are thriving, in part because their facilities are cheaper to build and operate. Along with recycling scrap steel, minimills also pollute less. Today Nucor, the leading American minimill company, pumps out as much steel as the top conventional producer, U.S. Steel.
And the globalization of the steel industry continues: Three weeks after Bethlehem Steel entered Chapter 11, German chancellor Gerhard Schröder presided at the opening of a new $1.5 billion stainless steel plant in China. Built through a joint venture known as Shanghai Krupp Stainless, it will be one of the most modern steel mills in the world, rising up in a country entering its great industrial age, not leaving it.
Meanwhile, back in Pennsylvania, the first phase of Bethlehem Works, the museum/theme park, is scheduled to open in mid-2002. The project is ambitious in its own way, also projected to cost $1.5 billion by completion. When it is done, huge crucibles, transformed into cars, will carry curious visitors past America's great industrial history. And both steel and Bethlehem will have found their natural place in the future.
