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SPEAKER_07: This is Planet Money from NPR. Keith Bussey has had a front row seat to the rise and fall of a great American industry.That industry?Steel.But back in the early 60s, he was just out of college and working an accounting job in northern Indiana.He was far from home, didn't know a lot of people.On the weekends, he'd go for drives.
SPEAKER_02: I used to go up to the sand dunes north of Valparaiso, Indiana.
SPEAKER_07: This beautiful stretch of land along the sandy shores of Lake Michigan.
SPEAKER_02: And they were constructing a brand new steel mill at the time called Bethlehem Steel Burns Harbor.
SPEAKER_07: Oh, like the big, big old school Bethlehem Steel.Okay.
SPEAKER_02: Yes, that one.
SPEAKER_05: Back then, Bethlehem Steel was huge.The second biggest steel company in the United States.
SPEAKER_07: And the site they were constructing. Dozens of buildings, many stories high.It had its own train system, smokestacks reaching up into the sky.This is what steel mills looked like for most of the last century.
SPEAKER_02: And I remember sitting on the sand dunes just watching the erection process from the beach. And thinking to myself, wow, this is a massive facility.
SPEAKER_05: It was more than a mile long.
SPEAKER_07: Did you stop and think, wait, maybe I should go work here, right?Like this seemed like a big facility.It's being built right then and there.It's not too far from where you live.
SPEAKER_02: Never give it a thought, actually.I had no idea that someday I'd be involved in the steel industry.
SPEAKER_07: Keith would be more than just involved.He would actually become one of the people who would lead a revolution in the way steel is manufactured.A change that would have significant implications for the American steel industry, for manufacturing, and for much of the trade policy of the last few decades. Hello and welcome to Planet Money.I'm Erika Barris.
SPEAKER_05: And I'm Mary Childs.Steel manufacturing was at one time the most important industry in the U.S.One of the biggest employers, a driver of economic growth.It shaped our national security.
SPEAKER_07: And it was the ultimate input.Cars, weapons, skyscrapers, they all needed steel.
SPEAKER_05: But then the industry's power started to decline.That's when an ambitious plan came along to transform it.
SPEAKER_07: Today on the show, what the fall of a once great industry can teach us about innovation, technology, and why you shouldn't undermine an underdog.
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SPEAKER_07: For a century, steel was made the same way.Workers would take limestone, iron, and coal, put them in a humongous pot, think like a five-story building, that would all be heated up using what's called an open hearth furnace.The materials would melt and become molten steel.And that was then processed and turned into train tracks, bridges, washing machines, refrigerators.
SPEAKER_05: And as the U.S.economy grew rapidly, the steel industry in the U.S.prospered.
SPEAKER_03: The steel industry looked very, very healthy.But if you look underneath, the beginnings of the problems were there.
SPEAKER_07: This is Tom Prusia, an economics professor at Rutgers.He says the downfall of big steel in the U.S.boils down to three problems.Problem one, labor.In 1959, more than half a million American steel workers went on strike.
SPEAKER_03: It went on for almost four months.
SPEAKER_07: It's a long time.
SPEAKER_03: A really long time.
SPEAKER_05: There were actually a series of strikes.Workers generally wanted more pay, and eventually the steel companies said yes.But Tom says this started a cycle.Every time there was a wage increase, the companies would raise the price of steel.
SPEAKER_03: So you're getting almost lockstep 3%, 5% wage increases, and then you'd get 5% increases in the cost of steel across the board.
SPEAKER_05: The steel industry was basically what economists call an oligopoly, a market with a limited number of producers.And sometimes companies in an oligopoly will all do the same thing, which is what happened here.Whenever one company would increase prices, the others would too.
SPEAKER_07: The strike and the price increases led to problem number two, foreign competition.Car and appliance manufacturers started looking abroad for a better price. Japan and Europe, after the Second World War, were rebuilding their industries and facilities.And they were willing to create and use new technologies.For instance... Europe had developed a new type of furnace called the basic oxygen furnace.It replaced the open hearth furnace that American steel mills had always used.
SPEAKER_03: An open hearth furnace was very inefficient.It might require six times as long cooking.Hours and hours of cooking versus a basic oxygen furnace would run the same amount of steel would be produced, but in less than one hour.So six hours versus one hour.And The open hearth furnaces require far more labor than the basic oxygen furnaces.
SPEAKER_05: And it wasn't just the furnace.Other countries had also developed more efficient ways of setting the steel or casting it.And all of these improvements made European and Japanese steel more competitive.They had better prices.So companies in the U.S.were opting to buy more steel from abroad.
SPEAKER_07: And Tom says problem number three was the mindset in the U.S.Companies resisted the new technology.
SPEAKER_03: They've always been slow to adopt some of the newer techniques that either improve cost efficiency or steel quality because these are costly new investments.What we've been doing has worked.And for a long time, the view was, well, the customer has no choice.
SPEAKER_07: Now, steel mills in the U.S.had the option of buying and using new furnace technology. But they were slow, too, because they already had furnaces.Maybe they were inefficient, but they worked.And the steel companies had spent millions on them.So for about a decade, they put off upgrading these new furnaces.But Tom says eventually they did.Well, that sounds great.So then they're competitive, right?
SPEAKER_03: No, because part of the challenge was that you weren't really designing a mill from the ground up.And so you had structures that were very inefficiently designed.So it was more labor intensive to operate.
SPEAKER_05: When U.S.steel companies finally did adopt the new technology, they bungled the transition.They retrofitted the old mills, putting smaller new furnaces in these big old spaces.But everything was far apart, so now workers were always running all around, which just wasn't efficient.
SPEAKER_03: What it meant was that the U.S.steel and many of the producers were having real cost competitive problems.
SPEAKER_07: These three problems, labor, competition from abroad and not innovating, added up to big steel in the U.S.teetering.By the early 80s, they had lost more than 300,000 workers or nearly 60 percent of its workforce.Some of the big mills closed, leaving behind hulking iron tombs. People eventually moved away.Steel towns became husks of what they had once been.And all this set the stage for the biggest disruption of all, the mini mill.
SPEAKER_05: The mini mill was this whole new kind of mill with a more compact system. Instead of those massive plants, it was mini.And at the center, instead of the big open hearth furnace, it was powered by a smaller, more efficient electric arc furnace.
SPEAKER_07: This new mill required fewer workers and way less energy.And its other big innovation?Rather than using all these raw materials, the iron, the coal, the limestone, the mini mill would make steel out of old steel.
SPEAKER_05: It would take scrap metal, scrap steel, Melt it down and turn it into new steel.
SPEAKER_07: Tom says big steel was again slow to adopt this mini mill technology because these machines were only able to make small things like nuts, bolts, rebar.Mini mills made many things and big steel made big things.
SPEAKER_05: There were some small companies using mini mills.One was this company called Nucor.
SPEAKER_03: The management company. of Bethlehem and U.S.Steel viewed Nucor as just this little bit player.Tom says their attitude was like... So if Nucor wants to sell their steel in that segment, they can have it because we really want to go upscale.We want to actually focus on where the high profit is.
SPEAKER_07: Yes, because the profit was in flat rolled sheet steel.That's the steel used to make buildings and cars.And these mini mills couldn't make that kind of steel.So big steel wasn't too worried. But maybe they should have been because Nucor was about to use the mini mill to topple what was left of big steel.
SPEAKER_05: So it's the mid 80s.Keith Bussey, the guy who had been in awe of that big Bethlehem steel mill going up 20 some years earlier, he was now actually working at Nucor.Pretty high level.He oversaw some of their factories, including one that made lower grade bolts.
SPEAKER_07: And one day he's in an airport lounge with the company's CEO. Ken Iverson.They had just wrapped up a meeting and they were grabbing drinks.
SPEAKER_02: Ken gets out a rather large cocktail napkin and says, Keith, I've been thinking about somehow building a mini mill that makes sheet steel, the kinds of steels that U.S.Steel makes and Bethlehem makes.And I said, Ken,
SPEAKER_07: Uh, because this is the worst possible time in American history to decide to scale up and become a big steel manufacturer like U.S.Steel or Bethlehem. Those companies were closing mills.
SPEAKER_05: Keith's boss, Ken, was talking about using the mini-mill idea to make big steel, to use this new technology to make the more profitable steel.
SPEAKER_07: Because flat-rolled steel was a $13 billion market.Breaking into this market with a mini-mill?That was a fantastical idea.No one had done this.
SPEAKER_02: He's drawing this mill of the future to make sheet steels.And I said, wow, that's a bold ambition.
SPEAKER_07: What did you think?Like, what was your thought when he said that to you?
SPEAKER_02: You know, no mini mill had ever made sheet steel before anywhere in the world.I thought if it could ever be done, it'd be probably the most exciting project the steel industry has ever seen.
SPEAKER_05: So a few years pass.It's now 1987, and Keith gets a call from that same boss.The call.
SPEAKER_02: He says, Keith, remember that cocktail napkin?This is going to turn into a reality. We want you to build and be responsible for the operation of this new steel mill.
SPEAKER_07: Would you call yourself like a risk taker then?
SPEAKER_02: I would like to say, Erica, that I'm a prudent risk taker.I don't do crazy things like go to Las Vegas and gamble and stuff like that.
SPEAKER_07: But you do start up a brand new kind of steel mill, though.You do take those kind of risks.
SPEAKER_02: I was scared to death on that one.
SPEAKER_05: Keith had just been given a really big job.Nucor was a company that made bolts and screws, and now they were going to try to take on big steel.And on a shoestring budget.The average cost of building a new steel mill was in the billions.And Keith's budget was about $250 million.
SPEAKER_02: Of course, big steel, when they heard about Nucor's budget for $250 million, quite frankly, laughed their ass off. They said there's no way they're going to build a steel mill to make over a million tons of steel for $250 million.They said it's not going to work, and if it does work, it'll be limited.It'll make such bad metallic metal that it'll only be good for boat anchors.
SPEAKER_07: Keith says there were two main obstacles for this new kind of steel mill.The first one, how to make the technology work.
SPEAKER_05: They bought new machines, but in order to make big steel, Keith would have to supersize the recipe.
SPEAKER_07: And scaling something up is never easy.Think of making a pie, multiplying a recipe by 10, and then trying to figure out whether your pie is done.Keith was trying to do a version of this, but for casting long sheets of steel.
SPEAKER_02: We'd come in many a night at two in the morning, three in the morning, stayed all day, all night.And we'd start the machine and it only gets so far and there'd be a breakout.
SPEAKER_07: What does a breakout mean?
SPEAKER_02: That meant that something that's only two inches thick, the walls of that two inch strip were hard steel, but in the center was liquid.
SPEAKER_07: So it was like it was cooking around the edges, but the inside still wasn't cooking.
SPEAKER_02: Yeah, you had your steak well done on the outside, but medium rare on the inside.
SPEAKER_05: So they had to keep tinkering.
SPEAKER_02: The temperatures weren't right.The speeds weren't right.And therefore, it was burning through the shell.And then the metal would just gush out everywhere.And you'd have to shut the machine down and rebuild the machine, prepare new molds, start all over again.
SPEAKER_05: Keith eventually got the right temperature.Then once the steel was cast, it had to be rolled into giant coils to make it easier to transport.But the steel was hot, really, really hot, like thousands of degrees.
SPEAKER_07: I can imagine it would just melt onto itself if you're rolling out flat metal steel.
SPEAKER_02: Oh, it does.It did.It made a mess.
SPEAKER_05: Figuring out the rolling, that took a whole summer.And for every new problem Keith and his team identified, they would have to modify the machine again.But finally, they managed to get the technology to work.They were able to make big spools of steel.
SPEAKER_07: Keith says the second big obstacle for this new mini mill was the workers. Nucor had a different approach to labor.The big steel companies were union, had been since the 1800s.Nucor was not.But there was pressure for this new mini mill to be a union shop.
SPEAKER_02: And I said it ain't gonna happen.Not in my tenure, it's not gonna happen.And it didn't.There's a different culture out there.Unions are not a necessary evil.
SPEAKER_05: Nucor and Keith felt unions were also part of why big steel was struggling.Because unions required all workers get paid a flat rate.But Nucor used an incentive model.Workers who made more steel got paid more.
SPEAKER_07: In the end, it took until 1989, almost two years, to get workers in place and this mini mill of the future going.
SPEAKER_02: It was exhilarating.It was fascinating.And listening to an electric arc furnace go off, melting scrap metal, Erica sounds like a hundred thunderstorms crackling at one time.
SPEAKER_07: Whoa.
SPEAKER_02: I'm not exaggerating.When the electrodes come down and actually touch the scrap in the furnace, that's when you get a hundred thunderstorms going off at once.I mean, it is so loud and so frightening, it'll make you jump right out of your pants.
SPEAKER_07: Keith felt victorious.Those thunderstorms meant they had done it. After the break, the mini mill goes big.
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SPEAKER_05: Small steel company Nucor had just fired up the first mini mill that could make flat rolled steel.And they were ready to go head to head with big steel with the legacy companies Bethlehem and U.S.Steel.
SPEAKER_07: What were you doing in 1989?
SPEAKER_03: I had a full head of hair in 1989.So we're not in 1989 anymore, Erica.
SPEAKER_05: Economics professor Tom Pruscia again.In 1989, as this mini mill was getting going, Big Steel was focusing on a different competitor.Rather than innovating and updating their technology and building more efficient mills, the Big Steel companies were worried about competition from abroad.They were worried about trade.Is trade the problem?
SPEAKER_03: No, trade, foreign suppliers more generally, are a boogeyman that the steel industry has created.And it's an excellent entity to blame.
SPEAKER_07: For big steel, imports from other countries was the boogeyman.So they spent time and money trying to fight foreign steel.
SPEAKER_03: Historically, they're probably the most active seeker of protection of all U.S.industries.
SPEAKER_05: Starting in the 1960s, big steel was pushing presidents for protection.We're talking tariffs, anti-dumping measures, quotas on steel from other countries.
SPEAKER_03: It's been nonstop, consistent lobbying.So a lot of what's happened over time is decades and decades of small rule changes all working in a way to make it easier to put large tariffs on their foreign competition.
SPEAKER_07: And steel's been the kind of industry that's maybe easy for politicians to get behind.It was once one of those reliable blue-collar jobs.And back when lots of weapons were made of steel, they could play up that it was a matter of national security.
SPEAKER_05: And Tom says it was convenient for politicians to point fingers outward at foreign trade rather than the U.S.company down the street that's just being more efficient.
SPEAKER_07: And at the same time, the big steel companies had other problems.Legacy costs, like they had all these big pension obligations. And they had giant properties that were built for the old ways of making steel.
SPEAKER_05: Over the last few decades, many of the old big steel companies declared bankruptcy and closed, including that once almighty Bethlehem Steel.The mini mills won.
SPEAKER_07: U.S.Steel was one of the last big steel companies standing.Late last year, they announced that they're going to be acquired by Nippon Steel, a Japanese company.Though it's not a done deal. We asked Keith, who set up that Nucor mini mill, how do you see your role in all of this?
SPEAKER_02: It was like, pardon my French, you didn't believe.You didn't believe it could be done and you didn't believe in us and we did it.And if you wouldn't have been so damn stubborn, maybe you wouldn't be in the predicament where you are today.
SPEAKER_07: And that's how you felt in 1989, 1990.1990, 91.
SPEAKER_02: I knew it was going to happen at that point in time.And I knew we were going to win the battle.In some ways, that's a good feeling, but in other ways, it's a bad feeling.Because when you win the battle, it means somebody else is going to suffer.
SPEAKER_07: Is that something you still think about now?
SPEAKER_02: No, not now. I mean, nothing stands still.The old ways pass and new ways replace them.The U.S.steel industry was the most powerful steel industry on Earth after World War II.But it rested on its laurels.You can't rest on your laurels.
SPEAKER_07: The rise of the mini mills is a classic business story. The big incumbent companies get overtaken by a scrappier outsider that finds a cheaper way.And then the outsider becomes the incumbent.Today, the U.S.still produces a ton of steel.Actually, 90 million tons.But with just a fraction of its workforce. When we were researching this episode, we found so many examples of the steel industry showing up in pop culture.And some were especially surprising.Like that time Marilyn Monroe sang Happy Birthday to JFK.
You know that song?But then she thanked him for keeping steel prices low. In our latest bonus episode, our three favorite examples, just for Planet Money Plus supporters.If you haven't signed up yet, you can find a link in our show notes.And if you already subscribe to Planet Money Plus, thank you.Your support helps keep our work going.
SPEAKER_05: This episode was produced by Willa Rubin and edited by Jess Jang.It was engineered by Sina Lafredo.Fact-checking by Sierra Juarez.Our executive producer is Alex Goldmark.
SPEAKER_07: Thank you to Douglas Irwin, Scott Lincecum, and Alan Collard-Wetzler.And thank you to Richard Preston, whose book American Steel was a source of inspiration for this episode.I'm Erika Barris.And I'm Mary Childs.This is NPR.
SPEAKER_05: Thanks for listening.
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