Steel for tomorrow

The Bethlehem Steel Corporation's recent decision to slam the factory gates shut on its 82-year-old plant at Lackawanna, N.Y., represents the unfortunate but necessary decisiveness that will be needed in all the corporate board rooms of big steel if the US is to retain a steel industry adequate for both consumer and defense needs.

The reasons are not hard to see.

The once mighty steel industry - which together with the auto industry has been the industrial bedrock of the American economy - is now facing a combination of difficult challenges.

Buffeted by low-cost output from abroad, surging imports that now constitute 23 per-cent of the US market compared to 15 percent in the 1970s, and a recession that has caused demand to sag, the industry is operating at about 40 percent of capacity. Roughly half of the steelworkers now laid off are not expected to return to work.

How should the American public react to the Bethlehem plant closing and other changes taking place throughout the steel industry?

And what national policies are needed to ensure a vigorous and competitive domestic industry to meet civilian and defense needs?

To begin with, political leaders and the general public need to recognize that the changes now occurring within the industry - difficult as they are for thousands of workers and many communities - are part of a larger global transformation.

Overcapacity is worldwide. Even Japan, which has seen its output of crude steel soar by over 20 percent since 1950, is making production cutbacks. It must also be recognized that the lessened demand for steel goes beyond recessionary factors. Rather, it mirrors changes within the manufacturing process as firms are dramatically downsizing their products.

Take the case of autos. Ford, to cite just one firm, has slashed over 1,000 pounds from its car weight between 1977 and 1982. Another 170 pounds is expected to be shed by 1985. That means that the United States will not need the massive steel industry of years past. Oft-heard demands that the federal government should, through direct federal subsidies or new import restrictions, bail out the industry to keep it at its present level are simply not realistic.

The basic problem, as noted by many economists, is structural. The US industry is still too dependent on obsolescent, massive integrated plants, such as Bethlehem's Lackawanna facility. Smaller units, utilizing, for example, electric furnaces, are needed. But to make adequate technological changes, a number of steps are in order:

* US firms must use their financial assets more wisely than just merging with non-steel enterprises. That means whittling away at the huge wage disparities between US and overseas (especially Asian) producers. Wages make up 40 percent of US production costs. American workers average $25 an hour, compared to, say, costs well over $100 more than a ton of Japanese-made steel.

US steelworkers must be more accommodating to industry regarding reasonable wage packages. Unfortunately, labor rejected a cost-cutting agreement in a national vote last month, despite a recommendation by union leaders that such an agreement was in the workers' long-run interest. No new agreement is now expected until next spring. Such an agreement remains absolutely vital to the industry.

* The steel companies themselves remain too inbred and stodgy. New and bolder management is needed. Firms must concentrate on areas where the US retains an edge, such as specialty steel.

* Finally, the Reagan administration and Congress must take positive steps to begin a massive retraining and relocation program for the thousands of steelworkers in scores of isolated communities who will not be returning to their jobs as plants fold. Such a plan should include special tax incentives to induce new industries to enter mill towns, as well as targeted programs to help resettle workers elsewhere who wish to do so. Also, depreciation allowances should be liberalized so that older equipment can be written off and new technology ordered.

* Protectionist measures, such as current industry efforts to restrict Asian steel, should be avoided. They merely invite trade wars that damage the US economy generally.

The US steel industry of the future will be leaner. But such a downsizing need not mean weaker if management and labor work together to ensure its success.

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