Thursday, November 06, 2008

Homestead: The Glory and Tragedy of an American Steel Town

I had a long list of books related to the region's history and culture, I wanted to get around to reading. One of them that, I'm so glad I got around to was a book called Homestead: Tragedy of an American Steel Town written in 1992. It was written by a the former labour and workplace corespondent of the NY Times during the tragic and tumultuous years between 1979 and 1986 which saw the death and near death of much of industrial America. The writer's deep association with the industry and committed work talking to people in the town over many years really pays off.

The first few chapters and the last are in some sense, not that interesting to me---The massive pain of catastrophic job loss in all it's devastation are laid out in painful detail. Several other chapter's paint a vivid picture of the incredibly tough and insanely dangerous life in one of the world's largest steel mills-- a place where the author estimates more than 1000 workers lost their lives in the the works more than 100 year history.

The middle of the book holds a somewhat more dry but clear and concise history of both the massive Homestead works and the company of which it was a central part-- U.S. Steel as well as the birth of the American labour movement.

While, Pittsburgh had been a central part of the American iron, glass and industrial history almost from it's birth, the scale of the massive industrial complexes in the Mon Valley that kicked off with Carnegie's Edgar Thomson works in Braddock in 1873 were unprecedented. Carnegie copied the new Bessemer process used by a few new English mills, to build a company marked by an almost brutally competitive nature, quick to innovate in new technologies, aggressive in sales and driven to be the lowest cost producer. Soon other mills followed, opened by both Carnegie and a host small host of other operators. The business was very tough on everyone and required massive amounts of upfront investments in fixed capital. Miscalculations in projected demand or disruptive new innovations can and did bankrupt many, but the potential profits were huge. Workers in a Carnegie Mill and most competitors worked 12 hour shifts, six or seven days a week. Not surprisingly, both the managers, investors and workers dreamed of an easier way.

Carnegie bought the new Homestead mill across the river from Braddock from it's financially strapped competitor and and in a few years new mills were built by Carnegie in nearby towns on the Mon as many of the smaller competing mills were bought out and consolidated into companies controlled by JP Morgan. The stage was set for a tragedy that few saw coming. Carnegie was ready to retire from the brutally competitive industry he had worked so hard to dominate through pricing and relentless innovation and Morgan who never could take the strain. " Although he was regarded as the archetype of the American capitalist, Morgan was in many ways not a capitalist.... but as as Joseph Frazier Wall wrote: " He did not really believe in the free enterprise system.. Like most ardent socialists, he hated the waste, duplication and clutter of unrestricted competition". It was for this reason that he had been so intoxicated by Schwab's portrayal of a combined, efficient steel industry."

Morgan made Carnegie an offer of a massive payment in gold for Carnegie's mills to create a company controlling 65% of the existing industry and once and for all stop the unpredictable, competitive free for and replace it with a stable comfortable and reliable business that would run almost as a perpetual machine. The deal was done and most of the rest of the book deals with the results. The combined company seemed indestructible and the only central issue seemed to be one of dividing the profits among the owners and also increasingly with the workers. Problem solved-- capitalism was just too much work!

"By 1936, the stagnation at U.S. Steel was such that Fortune magazine "recalled that the Corporation's policy had once been summarized as 'No inventions: no innovations'" (p. 132) and Charles M. Schwab reported that "the chairman of US Steel admitted to him that the Corporation, in fact, had missed every 'new thing' in steel" (p. 132). Under Carnegie's reign, Pittsburgh-based steel facilities had competed successfully against growing location-based advantages of other regions by relying on innovation, efficiency, and superior management. U.S. Steel under Gary did participate in the geographic dispersion of American steel-making but its "Pittsburgh Plus" pricing (an artificial attempt to exercise industry price discipline by linking prices across America to steel prices in Pittsburgh plus freight from Pittsburgh) led to a hobbling of the corporation's growth into new markets and eventually shrank the region in which Pittsburgh-area steel was competitive. Even in its infancy, U.S. Steel was an illustration of inertia and captivation by sunk-cost investments."

A further quote from an industry expert was even more honest about the results.

"Actually the operation of basic processes has not changed significantly in either theory or fundamental design of equipment in the past 75 years. While automobiles were being made better and cheaper with ever newer processes.... tonnage steel as distinguished from the specialty or the alloy steels grew neither cheaper or better"
Charles Ramsayer 1935

Much of the rest of the book deals with the struggles of workers to attain a larger and larger share of company output. In fact-- it sort of looks as if distribution of profits was the primary thing people thought about more and more as the years went on. The post WWII period ushered in what seemed like a golden age, culminating in what were increasingly cosy relations between workers and management. There was more than enough money to go around, seemingly little prospect of competition from abroad and no need to sweat. The company spent big-- but rarely, if ever took the lead and often built new plants and expansions with equipment that was obsolete from the start.

Anyway, great book, well worth reading. I hope to get back with more thoughts about it.

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