5
Steel Decline and Renewal

Donald F. Barnett and Robert W. Crandall

The American steel industry looms much larger in public policy discussions than its share of the overall economy might suggest. Once a large part of a growing U.S. manufacturing sector, steel now accounts for less than 1.5 percent of U.S. manufacturing employment, which in turn accounts for only about 13 percent of the total U.S. workforce. Manufacturing has been in relative decline in the United States and other developed economies, but steel has declined even more. Many other manufacturing industries-computers, apparel, motor vehicles, or food processing, for example--account for a much larger share of manufacturing activity.

Ironically, it has been the steep decline in the steel industry that explains its prominent role in U.S. industrial, labor, and trade policy discussions. The industry has shed more than 60 percent of its workforce since 1970, closing scores of plants in the industrial Midwest and Northeast and leaving vast industrial wastelands along the banks of the Monongahela and Mahoning Rivers in Pennsylvania and Ohio and along the shores of Lake Erie and Lake Michigan. Over the same period, dozens of new steel companies have begun operations in formerly nonindustrial areas of Arkansas, South Carolina, Utah, Texas, and Nebraska.

For the student of industrial organization, the steel industry provides a fascinating case study of the evolution of an industry from monopoly to cooperative oligopoly to competition. Shortly after the beginning of the twentieth century, the U.S. Steel Corporation controlled nearly two thirds of the industry's output, and imports were virtually nonexistent. By 1995, U.S. Steel's market share had fallen to less than 10 percent, imports were responsible for 21 percent of the U.S. market, and a new breed of small U.S. steelmak­ ers--the minimills--accounted for 34 percent of the market. The other large companies, several of whom had emerged from bankruptcy, were left to fight over about one third of industry shipments.

It is not surprising that this remarkable evolution in market structure has had severe impacts on wages, prices, and the returns to steelmaking assets. In fact, there is little about the industry's current performance that resembles its performance in the first sixty years of this century.


Industry Overview

The American Steel Market

Steel is a basic building block for a modern industrial economy. It is used in the construction of buildings, roads, and bridges. Steel is also the principal material used in the production of ap-

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