Printer Friendly

Up from the ashes: the rise of the steel minimill in the United States.

Up from the Ashes: The Rise of the Steel Minimill in the United States. By Donald F. Barnett and Robert W. Crandall. Washington, The Brookings Institution, 1986. 135 pp.

The padlocked steel plant, the cold blast furnace, and the laid-off steelworker flipping hamburgers are popular images of industrial decay. Donald F. Barnett and Robert W. Crandall insist that the reader consider that even in this most symbolic of declining industries there are growing firms, the "minimills." In those firms, they find a competitiveness that belies the notion that the United States is losing its edge and deindustrializing.

The minimills are a subsector of the steel industry with several characteristics that distinguish them from "integrated" Big Steel. The most obvious of these is size. According to Barnett and Crandall, about two-thirds of total minimill capacity is in plants of under 600,000 tons capacity. Compare that to a recent estimate that the minimum efficient scale of a new integrated steel facility is 6 million tons. Other distinguishing factors pointed to by the authors as typical of minimills include the scrap-fed electric furnace production process, a product range rather limited in scope and quality, superior productivity, lower wages, and narrower market specialization.

Of course, the factors that the authors think truly differentiate the distinct steel subindustries are their current and prospective viability. On one hand, they see an integrated sector unlikely to ". . .break out of their mold as large-scale, fully integrated producers. . . saddled with plants employing older technology, built under assumptions about prices and demand growth that have proved incorrect." On the other hand, they see a vibrant minimill industry marked by increasing investment, new technology, international competitiveness, productivity gains, and an increasingly sophisticated product mix.

There are two issues that are disturbing in this analysis. First, the characterization of the integrated steel industry is an example of the currently popular you-have-lost-America's-competitiveness style of criticism. Such harping, quite understandably, raises the defensive hackles of those who stand personally accused of creating a situation in which ". . .few U.S. integrated plants can be said to be of 'world class',. . .integrated firms were very slow to recognize that circumstances were changing after the world steel shortage of 1973-74," and ". . .the union may have been playing an end game, extracting as much of the quasi-rents as possible from the industry." Heaping the blame on the policies of those who are now quite clearly the victims of the restructuring of the steel industry seems counterproductive. As members of a preeminent policy research institution, Barnett and Crandall may have fallen into the trap of assuming that policy, private or public, is what makes the world go around. It seems more likely that changes in objective circumstances are most responsible for the restructuring of the U.S. steel industry, with policy, private and public, playing basically reactive and peripheral roles.

Another troubling issue is the recurring theme that "the minimill sector has the potential to continue growing for the rest of this century. . ." if one assumes that costs of production continue to fall and demand for steel remains at least steady. There are problems with both assumptions. On the matter of production cost, consider that in Appendix C, Barnett and Crandall model the scrap market without a variable that represents the proportion of steel production accounted for by electric furnaces, despite the fact that their own Appendix B shows clearly that a rising market share for electric furnaces implies both lower supply and higher demand for scrap. It would be interesting to assess the level of minimill output at which the price of scrap would become a significant restraint on expansion.

The supposition that steel demand will not fall is also suspect. Barnett and Crandall suggest, for example, that the minimills are poised to expand into the production of certain sheet metal products. Is this a wise course at a time when new polyarylate resins are bringing thermoplastic car bodies closer to reality? The chemical industry may be doing more to change the business environment of the American steel industry than all the steel plants in Japan, and expanding in the face of such forces may leave the minimills in a position to be judged as harshly as the integrated companies have been.
COPYRIGHT 1987 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1987 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Devens, Richard M., Jr.
Publication:Monthly Labor Review
Article Type:Book Review
Date:Jun 1, 1987
Words:705
Previous Article:OECD meeting calls for job growth, flexibility, and readjustment.
Next Article:Time spent unemployed: a new look at data from the CPS.
Topics:


Related Articles
Steel king: hoosier state still leads the steel industry, making a quarter of the nation's steel.
Seeking Acquisitions 35 -- Industrial Machinery & Equipment MINIMILL, POWER PLANT,, PULP & PAPER EQUIPMENT MANUFACTURER - (51).

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters