A childhood friend posted this on FB a couple of days ago and I read it quickly since I am originally from Alabama, lived in a family fueled by steel mill wages and have steel DNA flowing through me to this day. I worked in that huge Republic Steel plant the summer of 1966 in Gadsden, AL; now completely shuttered and sold for scrap iron to China. At my mother's funeral, she worked at that plant also during World War II, I was able to look out at the skeletal remains of that mill that employed thousands of men and women for many years. My grandfather organized the United Steel Worker's Union for that plant in the 1920s and was physically abused by the thugs in trying to prevent that from happening. All of that to say that I feel I have a pretty good handle on the Gadsden steel mill. I ate it, smelled it, heard it, lived it; it was our life two streets over from the bells, whistles and clanging of huge steel pipes and railroad engines. That, however, was another time, another chapter, the closing days of a strategic shift in the globalization of commodity manufacturing in America; an America that had global dominance from the leadership of ruined dust bowls of nations from the devastation of the war in steel, tires, cars, etc, etc.
The steel industry in Alabama today, per the news piece, is a classic illustration and example of the lethality of Adam Smith's Free Market Invisible Hand. It is all about competition for it is all about the consumer seeking more choices and better quality and ever reducing prices. THAT is the Free Market. There are winners and there are losers! The macro reason for the contraction of steel in Alabama is China as China transitions from an export based economy to and import based economy. China was a major buyer of American made steel as was most of Europe in the years after World War II as was Japan and South Korea. As technology, free trade zones, cheaper wage labor became more and more dominant IN ORDER TO LIVE IN THE SHADOW OF THE INVISIBLE HAND, the American steel and tire and auto and etc, had choices to make as to how they spent their capital, how they worked with the human capital and how they embraced the globalization. American steel makers generally chose to ignore the forces of globalization out of arrogance for America had always been the Big Dog in the House; no more!
Threading through all of this transition, actually transformation, was the stubbornness, expanding rule books and restrictions driven by the organization of unions in American manufacturing. I will insert here a personal view on this for during that summer of 1966 as an eighteen year old kid working night shifts in the steel plant, I was appalled as the poor productivity, the astounding waste of time, over manning on jobs, sleeping five and six hours a shift, underground rooms with magazine racks where soft drinks could be bought, lawn chairs for sleeping, etc, etc. The relationships with the foremen and the workers was simply terrible. No respect, unions protecting workers known for poor performance, historically missing work shifts and controversy was at the core of labor relations. That is a reality for both management and labor but a mantra for change that globalization of the industry forced. Unions and Management chose to ignore to maintain a poorly productive status quo. The result was that as the waves of globalization washed the US steel, tire, auto, etc. market, bankruptcies became the norm as you will remember. I am now in the 1980s time period!
During that same time frame, Southeastern United States began a new system called Right-to-Work meaning people had the choice of being in a union or not and the choice was overwhelmingly Not. As a result, foreign transplant auto firms began multi-trillion dollar capital flows into the US turning the SEUS into global export for steel, tires, autos, etc. Let that sink in for a minute! But the unions are collecting billions of dollars and dues from a shrinking workforce to grease political coffers to keep RTW out of the Rust Belt and to constantly attack the productive operations in the SEUS location; a losing battle but more and more destructive to steel families. Plants closed enmasse, bankruptcies being gobbled up by French and Luxembourgish and Indian steel giants cutting out all benefits for retirees and their descendants. My mother is a classic example of this reality!
It is a tragic, sickening story but it is a story of the machinery of the Invisible Hand. Whining will not fix a poor situation that was creating and spawned over decades for then it becomes cultural; thus what I describe above. Some will read that above and will not like it but facts are facts and I lived the facts as did many that may or may not read this. As the wheels of the Hand continued to cut through the waves of the sweeping globalization, China, to protect her own growing 1.4 billion consumers, had to invest capital into core industries to ensure availability of good and services for the population; steel, auto, tires, etc, for example. With all the shifting described above, China in the year 2000 had 64 high tensile steel plants, huge and brand new high technology steels mills in operation or under construction. What the result was a global glut of steel production capacity. That over capacity was high grade, much cheaper steel for the consumer so, where would you buy?
It is painful to see the Invisible Hand at work but it is more frustrating to witness the lack of strategic planning and execution by industry executives to do what is necessary to increase the higher value production; not whine and politic to get jobs back that are gone and gone forever. That has never happened in the economic history for America has transitioned from an Industrial-driven economy into an Information / Service GDP nation. China is heavily into their own Manufacturing economy and they are doing a much better job than America did in positioning itself for the global view on steel, tires, auto, etc.
I will close by stating that America has lost its footing and vision driven leadership fueled by inept political leadership which we all are painfully witnessing on many fronts. In economics, you do not back back; you move ahead faster and better than the competition. We Consumers demand that!
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