U.S. Steel balancing act offers economic warning

U.S. Steel will spend big to update its steel works in Gary, Indiana. But is it too late? (PHOTO: Eric Allix Rogers, Flickr CC)

As the United Steelworkers union and U.S. Steel inch toward a strike, many on Minnesota’s Iron Range wonder why. The economy is good. Steel is selling for a high price. So, why is U.S. Steel playing hardball with its workers?

The answer exposes some concerning facts not just in the steel industry, but across corporate America.

One-hundred years ago critics lambasted corporations like John Rockefeller’s Standard Oil and J.P. Morgan’s U.S. Steel as monopolies. Nevertheless, these companies provided something lacking after the conclusion of the American civil war: economic stability.

Staunch capitalists argued that the positive effect of big corporations outweighed the negatives, which included worker oppression and concentrated political power in the hands of the wealthy. You’ve got to break a few eggs to make an omelet, they said. The alternative is chaos and economic ruin, they said. These same arguments endure today.

So, what are corporations supposed to do? What’s the point of them?

A simple, appealing answer might include “make and sell innovative products” or “employ workers.” When we have a positive view of a corporation we typically think of these responses.

But the truth, borne out in most contemporary economic theories, is that corporations only have one true purpose: to make money for their stockholders. That’s how analysts assess companies. That’s what CEOs are hired to do. That is the reason those CEOs receive salaries that grow exponentially compared to what their workers make.

If a company develops an exciting new product, that’s great. So long as it makes the more money for stockholders than sticking with the old product.

If workers make more money because the company does well, that’s great. So long as paying them more creates productivity that make more money for stockholders than paying workers less or replacing them with machines.

And so on.

This cutthroat approach doesn’t provide much time or money for research and development. Further, most companies now see productivity as something that must *precede* pay increases. That is why the average American man makes less now, adjusted for inflation, than he did in 1988. Women make 20 percent less than men.

So, America is innovating less and its middle class is shrinking. In response, this nation elected a government that believes that this approach to corporate management is good. Not only that, the current government maintains that it should be encouraged with tax cuts that disproportionately benefit those same stockholders.

One might predict a negative result.

In this, U.S. Steel becomes an interesting case study. As we mentioned, U.S. Steel is doing much better this year than two years ago. Back then, the whole steel industry reeled from a glut of global supply. Demand has returned. Steel prices are up. And yes, new tariffs on foreign steel pumped oxygen into the market the way fuel additives put a little extra vroom in an engine.

U.S. Steel posted a profit last quarter and announced the reopening of its Granite City mill near St. Louis. That’s good news for its Minnesota mines at Mountain Iron and Keewatin.

In addition, the company announced in August that it would invest $750 million in upgrading its Gary Works, the hub of U.S. Steel’s entire North American operation. The money would go toward environmental and technological upgrades, though the company hasn’t said exactly what that means yet. Further, the move would “protect” more than 3,800 jobs at the facility, but wouldn’t create any new ones.

U.S. Steel is a fully-integrated steelmaker. That means they own coal and iron mines, steel mills and finishing plants that produce a variety of steel products. They innovated this technique a century ago and have more or less stuck to the concept with some modern tweaking.

This is a great way to make lots of steel for big customers. But the steel industry has changed in recent decades. U.S. Steel’s giant blast furnaces, once the hallmark of the industry, are seen as dinosaurs. Smaller electric arc furnaces produce specialty batches of steel from recycled material and nearly pure iron stock. These have become the new industry norm.

It’s telling that U.S. Steel declined to comment on whether the $750 billion upgrade in Gary, Indiana would include electric arc furnaces. They’re worried that stockholders would bolt on them no matter how they answer the question. If they are, then it means they’re abandoning the safe refuge of their old blast furnaces. If they aren’t, then it means they’re not preparing for the future.

U.S. Steel used to be king of the global steel industry. Now that title belongs to ArcelorMittal (also tied up in the current United Steelworkers labor dispute). In “The Godfather, Part II,” a 1950s mob boss declares with bravado that “we’re bigger than U.S. Steel.”

At the time that meant something. Now U.S. Steel wishes it was as big as the mob. Business is good, but the company is not yet at full strength.

Here in Northern Minnesota, U.S. Steel owns and operates Minntac and Keewatin Taconite. They also own a minority stake in Hibbing Taconite, which will be changing management next year. The health of this company will have a big impact on the Mesabi Iron Range. Can the company adjust to the new realities of the steel business, or is it too late?

In the weeks that followed U.S. Steel’s August earnings announcement, company stock fell 8.5 percent. This despite the good economy and high steel prices.

Meantime, I wonder whether U.S. Steel and ArcelorMittal’s hard line position with the Steelworkers is a desperate act to strategically weaken the union, or just the cold calculation of companies serving stockholders to the very end.

The big picture suggests it might be both. The “stockholders first” approach to corporate strategy is allowing small, aggressive competitors to pick the bones of stable giants like U.S. Steel. That’s why they’re driving a hard bargain with the workers. They feel they must.

All that means is that anything the union gives up will not come back. If the ruling philosophy is “stockholders first” then workers in all industries need to stand strong.

Importantly, the ore beneath the ground belongs to the people. Its value must be developed in new, innovative ways for industry to survive alongside fair labor practices and pay. We’ve mostly assumed that capitalism will take care of this. But it hasn’t. That’s something hurting all workers both near and far beyond our small world in Northern Minnesota.

And, though they’d be loathe to admit it, it hasn’t been good for U.S. Steel either.

A good economy is good for everyone. Otherwise it’s just a good scheme.

Aaron J. Brown is an author and college instructor from northern Minnesota’s Iron Range. He writes the blog MinnesotaBrown.com and hosts the Great Northern Radio Show on Northern Community Radio. A shorter version of this piece first appeared in the Sunday, Sept. 9, 2018 edition of the Hibbing Daily Tribune.


Comments

  1. Now your talkin… opps writin …thanks

  2. My, my. The ore under the ground belongs to the people? When did this take place? Oh, that’s right, when we abandoned private ownership, now I recall. Oops, sorry, wrong country, that was the USSR . And ‘a good economy is good for everyone’? Since when? There are always winners and losers when there’s competition. Eliminate competition and watch technological progress come to a screeching halt. If U.S. Steel can’t compete with the smaller operations, that’s the way the cookie crumbles. Some other company will rise to fill the void with better management and methods. Nothing wrong with that. Old dinosaurs die, and new ones are born. It’s competition, it’s evolution, and it’s a natural progression.

    • The notion that the ore belongs to the people is more than 100 years old. That’s the fundamental basis of mining leases, permits to mine, mining taxation and things like the Permanent School Trust fund. It was bellowed from the pulpit by Hibbing Mayor Victor Power in 1913. He was a Republican.

      • The taxation of private property and minerals, yes that’s a fact. The ore belongs to the people, no. That’s straight up communism any way you look at it, even if Vic Power and the Finns out at Mesaba Park bellowed it. It’s like saying everyone owns all the private property. It’s just not the case, and it was never intended to be so by the founders. Private ownership is the cornerstone of English law and American constitutional law. The great debate has always been whether you have the right to tell me what I can or can’t do with my privately-owned property. The left says, yes, we can, the right says nobody has that right but the owner. It’s the reason mining is becoming almost non-existent domestically and why we import most of our natural resource commodities from foreign countries. “The people” don’t want it to take place in their backyard, but they regard it as ok if Australia rapes the outback, ships the ore to China where air/ground pollution is not an issue, and then sells the final product to us “people”. We’re not helping ourselves or the world this way, any way you look at it.

  3. Obviously, not all technological progress is driven by competition. Often substantial government investment is required to bring new technology to a place where it’s economically feasibly to exploit financially. Think space travel. Hundreds of billions of dollars invested by the government has, after many decades, finally brought us to a point where private entrepreneurs are willing to gamble on making a profit on it. Think cell phones and GPS. It wasn’t private industry that put the first satellites up there. In the end, what technological progress requires is a lot of smart people getting paid to think hard about it. They can be paid by the government, or they can be paid by private business. Just so they’re paid.

Speak Your Mind

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.