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Saturday, July 24, 2010

Bethlehem Steel Blues

I was browsing through a website called SnagFilms which hosts documentaries and I came across a three-minute film on the sad aftermath of the failure of Bethlehem Steel in 2003.  This short video is worth a look.

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The deep sadness in this film piqued my curiosity about this very successful company and its namesake town of Bethlehem, Pennsylvania.  Wikipedia has a great overview article on the company.  Fortune Magazine did a post-mortem on the company's demise back in a 2004 issue which was worth a quick read. 

The steel industry was once the bellwether of American industrial health.  Bethlehem Steel provided the steel for the Golden Gate Bridge and the Empire State Building, among a long list of other American icons.  It was not only one of the largest of the U.S. steel producers, it was also one of the largest ship-building and railroad car manufacturers in the country.  Now, the original steel mill site in Bethlehem is bare ground except for a new casino.  In some bitter twist of fate, the construction of the casino was delayed for a shortage of... you guessed it... steel.

What went wrong?  The answer is both complicated and simple.  The complicated answer involves the emergence of cheaper steel from newly-built mills in Japan and Europe following World War II, the dependence of U.S. industry on trade barriers for protection rather than reinvesting for innovation, arrogant management, huge legacy costs for retiree healthcare benefits, and a steelworkers union that refused to give an inch to a management that was equally obstinate.  The simple answer is that the steel industry ran its natural course and we no longer need to make steel.  That simple answer, like most simple answers, is also wrong.

Lehigh University has done a great job putting together a website called Beyond Steel that goes into many different aspects of the manufacturing and cultural history of the region.  I especially liked this picture of Bethlehem management taken in 1950.
You don't have to see any detail to know that this was an old, white guy's club. 

Unfortunately, we don't seem to learn much from the life cycles of companies and industries.  The early risk takers give way to the managers who drive up efficiency which leads to the management that pays itself enormous salaries for what seems like their God-given success which precedes the bankruptcy experts who dismantle the enterprise after it crashes.  We are seeing it now in banking.  The auto companies have also been recently knocked down a notch by their own arrogance.  The jury is still out  to see if they survive the long term.  After all, it took Bethlehem Steel almost thirty years to die.

But as the first film shows, often the biggest cost to a community is the disruption to families that have lived there for generations.  In the end, when a company fails, everybody loses.  Everybody.  If you look back at that picture of management, you can just make out five little statuettes on the back wall of the auditorium.  They represent the Customers, Employees, Management, Shareholders, and Suppliers.  Every one of them lost out. 

And we are left building casinos on old industrial sites which form a kind of scab on what was once the healthy corpus of our economy.  But, what the hell, this time around, the odds are with the house.
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