Globalization and Technical Change
We live in a time of change. In particular, we live in a world in which computing power is steadily transforming the way people work. Today, there are many who have never seen anyone operate an elevator as a way to earn a living because that task was long since delegated to a button, a sensor, and a computer chip. If we were to track occupations as we do animal species, secretaries would surely be joining elevator operators and many others on the ever-lengthening list of work species endangered or displaced by the impact of technology.
Improvement in the cheapness and ease of sending and receiving information has also changed how corporations work. This has made tight coordination with far-flung global enterprises much more feasible. Container ships, huge freighters, and air freight have also made moving not only information but also goods between national geographies cheaper and easier. These changes, by opening up national markets to international trade, have worsened the fate of industries and the divisive public policy issue, rather than something that is in the main naturally arranged by geographical separation. Successful remote market access, with all its possibilities for disruptive change, now occurs on a much larger scale than ever before.
These changes are usually described as globalization. But globalization is a very abstract word; it is not clear that it means the same thing to different people. Nor can it, because, in fact, globalization is very different in its effect on different industries. Simple models of what is going on cannot be expected to be realistic.
What then can be done to make these important changes and their consequences more intelligible? I suggest that one thing to do is to obtain a realistic view of at least one industry. I do not mean that one sample industry can tell you what globalization means to other industries. Rather when you have seen what can happen in one industry, and have seen that much that actually happened is neither intuitive nor obvious, you will be in a better position to ask and comprehend more about what is going on in other industries. This will help in understanding even if the actual events occurring in the other industry are quite different.
In some manufacturing industries, access to necessary natural inputs may be easy, and an insignificant advantage or disadvantage to firms in different locations, but in others it can be a life or death issue. Steel, surprisingly enough, has experienced both these situations.
This book describes the steel industry; it gives its history; it describes the many ways that steel is made today, how it was made in the past, and how it may be made in the future. It describes the effect of change. We watch as the Bessemer process transforms steel from something rare, special, and precious, like the “Damascus steel” prized for sharp-edged swords, into something common: an everyday material with a thousand uses. And that first seminal event turns out to be only a beginning.
We watch as steel plants turn from being assemblages of burly men sweating against a background of flames and hot glowing steel to vast buildings containing only a few people. And these few are perched high above the hot plant floors, looking down at what is happening below, and looking toward computer screens. From their lofty perches they operate the controls that move the hot steel shapes below from place to place and are in control of every detail of the processing.
We watch as almost all the corporations that would be even slightly familiar to Americans, corporations like Bethlehem Steel, Jones and Laughlin, Lackawanna Steel, Inland Steel, and Republic Steel, disappear through mergers and end up being parts of something called ArcelorMittal. ArcelorMittal is not an American household word, but today it is the world’s largest single steel producer, a widespread global corporation controlled by two members of India’s wealthy Mittal family.
Meanwhile, the company that was once a household word, U.S. Steel, and that was also once the largest company in the world, still survives after a merger with Carnegie Steel. But it has been reduced in scope and scale with a production capability less than a quarter of that of ArcelorMittal.
How did these enormous changes come about? There are many reasons, but the most important are certainly not what a purely economic overview would predict. For example, in steel, where labor is a small part of cost, cheap labor was not the issue. Much of the difficulties of American companies in the 1980s and 1990s were not the simple working out of something economically inevitable.
Technical decisions played a major role. And those decisions were shaped in part not only by financial pressures but also by personal histories and national differences. Innovative Japanese firms, supported by the Japanese government’s Ministry of International Trade and Industry (MITI), pioneered in better steel manufacturing processes, but most US firms, sticking with the familiar, fell behind. Organizational issues too played a role.
Then there was and is the rise of China. While many US integrated steel firms were acting on the appealing idea of concentrating on their core competencies and were busy selling off their “peripheral” coal mines and iron ore sources, China was busy acquiring them. Then with the development of both the appetite for steel and the ability to make steel—China today makes more than half the world’s steel—raw material prices went through the roof handicapping those who did not have raw materials in house.
In addition, there is the rise of the minimills that made steel from scrap, and the vital role played throughout by union-management relations. This book describes in some detail what was at stake in the great steel strike of 1959 and the later landmark steel agreements, and what their consequences actually were.
This book contains all this and much more. Its account of steel industry shows clearly how much more there is to a real industry than is apparent from a distance; and how that much more can be decisive.
We are fortunate that the steel industry is described to us here by Peter Warrian. Peter Warrian, a Canadian, has been in the steel industry for 35 years. He is a steel insider with deep knowledge, but he is not a simple partisan of management, or of labor, or of government. He has been the chief economic advisor to the Ontario government, has held important posts in the steelworkers union, and has consulted with major steel corporations. He is now a research fellow at the University of Toronto and head of the Lupina Foundation.
Peter Warrian’s account of the steel industry does not make the events he describes seem mysterious, or due to greed, or to stupidity. Rather he describes humans working as best they know how, but embedded in an environment that is changing, complex, and unpredictable.
That is the kind of account we need if we are going to understand and be realistic about the role of industries in a globalized world.