The Fight to Save the Steel Mills

For some years I have been practicing law in Youngstown, Ohio, a town of about 150,000 people on the Pennsylvania border that has been one of the major steel-making centers in America since the turn of the century. Thousands of families here depend on the steel mills for their living. Now the mills are in trouble. Some are closing down. In response—quite unexpectedly—the steelworkers have been demanding a say in the decisions to close down the plants, even the chance to take part in controlling them. How are they going about this and do they have any chance to succeed? The answers may have serious effects on the way industrial decisions are made, at a time when other large American companies want to cut back production or move their factories.

In September 1977, the Lykes Corporation, a conglomerate based in New Orleans, announced the permanent layoff of about 5,000 employees at the Campbell Works in Youngstown. These works are run by one of our town’s oldest mills, the Youngstown Sheet and Tube Company, but since 1969 the company had been no more than a subsidiary of Lykes.

In November 1977, the Lykes and Ling-Temco-Vought (LTV) corporations announced an intention to merge, and by June 1978, this was approved by Attorney General Griffin Bell, who overruled the recommendation of his Anti-trust Division. The merger took place in December.

As a result, the Youngstown Sheet & Tube Company is being absorbed by the Jones & Laughlin Corporation, an LTV subsidiary. Jones & Laughlin has announced that by the end of 1979 it will shut down a second Youngstown steel mill, the Brier Hill Works, putting another 1,200 steelworkers out of work.

Brownfield and Greenfield

The first response of many steelworkers and others in Youngstown to the layoff of 5,000 workers at the Campbell Works was to blame the Japanese and the federal government. The Japanese were said to be at fault for having allegedly “dumped” steel below its cost of production in the American market; the federal government, for having permitted the dumping, because it opposed needed increases in the price of steel and, above all, because it insisted on costly environmental regulations.

The night of the day the layoffs were announced (known as “Black Monday” until black residents protested) the Central Labor Union, in an emergency meeting, endorsed a campaign to send petitions to Washington asking President Carter to stop steel imports, permit steel prices to be raised, and ease off on rules protecting the environment. More than 100,000 signatures were collected in four days, and on Friday of the same week, chartered buses went to Washington. It was a frustrating day. The president did not bother to send an aide to receive the petitions. The protesters met with the president of the national steelworkers’ union, Lloyd McBride, who told them that when a business goes bankrupt there is nothing to be done about it.

On reflection, some of the laid-off workers realized that in their panic they had endorsed the steel industry’s program. It was neither the Japanese nor the Environmental Protection Agency that had decided to make the largest single layoff since the end of World War II, but the Board of Directors of the Lykes Corporation. Further, a little research showed that this absentee conglomerate, after acquiring the Youngstown Sheet & Tube Company, had used the cash flow of its steel subsidiary to acquire other businesses rather than to make the capital investment required to keep the mills competitive. Lykes had milked a perfectly good steel company and then shut it down because of its own failure to modernize the equipment.

But this second perspective, too, was inadequate. It assumed a division of the world into “good” steel companies which plow earnings back into technical improvements, in fact, and “bad” steel companies which divert earnings elsewhere, when, in the second half of 1977 practically all American steel companies were shutting down older facilities. Thus Bethlehem Steel laid off men in Lackawanna, New York, Armco Steel laid off men in Middletown, Ohio, and Wheeling-Pittsburgh Steel did the same. None of these companies was owned by a conglomerate. United States Steel, too, participated in what industry journals termed the “shakeout” by announcing that it would run its mills in Youngstown only so long as they were profitable without new investment. Thus the Number One company in the industry declared publicly that it was willing to do exactly what Lykes had done before the Campbell Works shutdown.

Why is it that not only Lykes but nearly all American steel companies are encountering hard times? The answer is reasonably clear and was endorsed by no less an authority than Merrill Lynch in a study of the industry published in June 1977. Most of the American steel industry has become technically obsolete. While Japan rebuilt its bombedout industry after World War II with the newest and best technology, American steelmakers ran their older mills into the ground before beginning to think about new methods. Japan thus enjoyed what Thorstein Veblen once called the advantages of backwardness. Too much of the American industry still transforms iron into steel in open hearths, whereas the entire Japanese industry uses the newer Basic Oxygen Furnace method. The BOF, as it is called, can produce in forty-five minutes a “heat” of steel that takes hours to make in open hearths. Japanese steel companies may at times dump steel on American markets, but fundamentally their lower prices are based on actual savings in cost.

The next question is what to do about it. If the United States could seal off its domestic steel market from foreign competition, American producers could shut down less efficient mills, concentrate on a smaller output at the most efficient mills, raise prices, and thus survive reasonably well—the traditional protectionist solution.

But in an age of multinationals and the Trilateral Commission, US steel producers do not perceive it as in their best interests to prevent Japan from exporting steel since they want to compete in and if possible dominate the world market, not to resign from it. Accordingly, some way must be found to modernize the American steel industry so as to compete with the Japanese.

There are two ways to do this, each of which requires large capital spending by the federal government. One is the “greenfield” approach, which the American industry is pursuing: when steel facilities in a particular community become obsolete, industry abandons the community and rebuilds from the ground up in a rural setting. The model is the new mill which United States Steel proposes to build in Conneaut, Ohio, seventy-five miles north of Youngstown on the shores of Lake Erie. The venture would despoil a huge area: Welch’s Grape Juice, for example, is said to oppose it because the sulphur dioxide would destroy the extensive grape vineyards that are cultivated in the region extending from the Pennsylvania state line, just east of Conneaut, north to Buffalo, New York.

The other, the “brownfield” approach, is clearly more humane. It would rebuild the industry in communities where steelworkers already live. It would use a comparable amount of economic capital and, its adherents contend, would do much to conserve “social capital,” by keeping family and neighborhood life intact. This is no small consideration in a town like Youngstown, where three generations of a family may live within driving distance of each other. The former secretary of the interior, Stewart Udall, has supported a brownfield approach for northeastern Ohio.

The issues seem closely analogous to the urban renewal debate of the late 1950s and 1960s, when urban development was understood to require the bulldozing of inner-city sites several blocks in size, relocating the entire population, and building everything new. Some of us then argued that this approach unnecessarily squandered “social capital,” or to put it simply, people. We said that a neighborhood could be rebuilt piece by piece without evicting its residents. Development could begin in places such as parking lots and old warehouses, wherever population was least dense; new housing could be built into which persons could move the few blocks from their present homes; finally, the denser areas could be modernized, but in such a way as to preserve the churches, settlement houses, meeting places—e.g., Cooper Union on New York’s lower East Side—which help to hold a neighborhood together.

Such a brownfield approach to urban renewal has now become widely accepted. I am convinced that fifteen years from now a similar conception of industrial modernization will be widely followed. It would be a shame if a generation of working people and their communities had to be sacrificed while industry catches up with the world in its thinking as well as its machines.

The Ecumenical Coalition

The principal effort to do something about the shutdown of the Campbell Works has been sponsored by a group with the improbable name of the Ecumenical Coalition of the Mahoning Valley. (The Mahoning Valley includes the municipalities of Campbell and Struthers, in which most of the Campbell Works is located, as well as the city of Youngstown.) The Coalition is made up of church groups, and its executive committee includes the bishops of the Catholic, Episcopal, and Methodist churches, and representatives of the Presbyterians, Jews, and Congregationalists. Its staff director is a Catholic priest, Father Stanton, who has taken part in meeting after meeting with angry steelworkers and become one of the most outspoken advocates in Youngstown of saving the Campbell Works.

The Ecumenical Coalition asked the National Center for Economic Alternatives, a Washington think tank, to study whether reopening the mill was economically practicable. NCEA in turn hired, from a prestigious consulting firm, an economist who was an expert on the steel industry. Their joint verdict was that if markets are available and if the federal government puts up or guarantees the necessary capital investment, reopening would make sense. After all, Lykes shut down the mill not because it was inherently unprofitable, but because Lykes, having failed to invest the cash flow of previous years, was unable to borrow the capital required for modernization.

Accordingly, the steel consultant is now doing a final study of possible markets, the Department of Commerce has set aside $100 million in 90 percent loan guarantees for possible use by the project, and the Coalition has applied to the Department of Housing and Urban Development for a $17 million Urban Development Action Grant to buy the mill.

Simultaneously with the application for a UDAG grant, the executive committee of the Coalition is setting up Community Steel, Inc., as the profit-making corporation that would operate the reopened mill. The study done by the NCEA included an interesting proposal for the corporation’s structure, which the Coalition adopted. It divides power in three ways. Six of the fifteen members of the Community Steel, Inc. board would be elected by common shareholders; another six would be elected by the employees, who would acquire stock in the corporation through an Employee Stock Ownership Plan (ESOP); and three would be elected by the Mahoning Valley Economic Development Committee, Inc., a non-profit corporation broadly representative of local governments, business, and labor in the area.

The study by the National Center for Economic Alternatives found that in the surprisingly numerous American enterprises in which employees took part in management, productivity had increased by as much as 20 percent. If this could be achieved in Youngstown it would be the kind of saving available to a worker-community venture that Lykes or J & L has not been able to tap. Further, the study proposed that the federal government make available the money to purchase the stock ESOP would hold, and that this money be repaid into a revolving fund for general economic development administered by the Mahoning Valley Economic Development Committee, Inc.

This plan fits none of the usual American or European patterns—day to day control would not be placed in the hands of corporate or state bureaucracies; nor would it go entirely to the “community” or to the workers themselves. If federal money is forthcoming, the plan could be one of the most interesting experiments in industrial democracy yet made in the US.

Whose Mill?

The Coalition’s strategy has been worked out by clergymen, not steelworkers, although many Campbell workers are backing it. The situation is quite different at the second mill scheduled for shutdown, the Brier Hill Works. At the Campbell Works, the decision to shut down was made on September 18, 1977, at a meeting of the Lykes directors. The union was informed at 10 AM the next day, just as the announcement was being made to the press. In the case of the Brier Hill Works the company gave a humiliating form of advance notice. In February 1978, the chief executive of J & L informed several Youngstown politicians and officials—but not the Brier Hill local union—that Brier Hill might be closed if the merger went through.

When the Brier Hill local union asked for a meeting to discuss the matter, their request was denied. In October 1978, Lykes and LTV sent a joint prospectus to their shareholders—but, again, not to the Brier Hill local union—stating that Brier Hill would definitely be shut down by the end of 1979. The Brier Hill local again requested a meeting, again was refused. Finally on December 14, 1978, J & L—its parent company LTV now merged with Lykes—told the officers of the Brier Hill local union that their mill would be closed.

Four hundred members of the local attended a mass meeting the next night. Some members suggested occupying the mill and chaining themselves to machines which the company proposed to move to the nearby J & L mill at Aliquippa, Pennsylvania. The meeting decided, for the time being, to set up picket lines that would hand out information, and to demand an immediate meeting with the company to discuss the alternatives to a shutdown.

The views of many in the Brier Hill struggle will surprise those who tend to think that all hardhats are Wallaceites. The president and vice president of the Brier Hill local, Ed Mann and John Barbero, consistently supported such causes as desegregation, peace in Vietnam, civil liberties, and a labor party. The recording secretary, Gerald Dickey, was the first advocate in the valley of worker-community ownership.

After the mass meeting Gerald Dickey drafted a position paper to be presented to management. “Since our last meeting December 14,” the statement began,

in which you, J & L management, notified the Union formally, that you intended to shut down the Brier Hill plant, putting 1,200 of us out in the street, we have met with our membership, discussed your plans and started preparations to alter your plans, change your decisions, and save our jobs.

The decision to shut down Brier Hill, the statement continues,

was made, in perhaps a typical, nonchalant manner in some corporate board room, far removed from the scene of the crime. In the age of the multinationals and conglomerates, it seems like business as usual. We simply cannot tolerate such cruel and inhuman actions. The people responsible for these decisions escape accountability. It’s time that changes.

The workers wanted time to develop plans—including worker-community ownership—that might enable Brier Hill to stay open. The statement concluded, “We are asking you to extend the timetable for shutting down our steel mill.” (The company having no further use for it, why not, as Ed Mann said, think of the Brier Hill plant as “our steel mill”?)

Edgar Speer, chairman of the board of United States Steel, calls worker-community ownership “communism.” Richard Gray, vice president of corporate development for Republic Steel, denounces the Coalition proposal as a “socialistic adventure.” It seems hardly accidental that US and Republic Steel are the largest steel companies in the Youngstown area. Community Steel, Inc., should it become a reality, would threaten them as a competitor. And it’s obvious that economic distress has caused not only workers but many others in this conservative, strongly ethnic, “middle American” community to ask questions that would not otherwise have occurred to them.

For example, should a corporation be able to come into a community, make use of the energy of its young people, dirty its air and befoul its waters, and then determine, unilaterally, to abandon it? How many years must a man work in a plant to have the right to be consulted before it is determined to take away his job? And what about the rest of Youngstown? When J & L informed the Brier Hill local union that the mill would be shut down, the local demanded a meeting with management. Recognizing that support from politicians and labor leaders would be necessary to help avert a shutdown, the union invited a number of national and local officials to meet with them and the J & L management on January 19, 1979. Among those who came were Mayor Philip Richley of Youngstown, a member of Senator Edward Kennedy’s staff, the president of UAW Local 1112 representing Congressman Lyle Williams, and a public relations man for J & L—who told them they couldn’t attend the meeting. But suppose that a more sophisticated corporation welcomed employee and community representatives, sat them around a table, served them coffee, and invited them to have their say. What criteria should govern an investment decision like a plant closing?

One central question should be whether the costs and benefits, not only to the corporation but also to the taxpayers and local citizens, are being taken into account. The National Center for Economic Alternatives calculates that the cost of closing the Campbell works would be about $70 million in social welfare payments by federal, state, and local governments. Whether reopening the mill is “too expensive” becomes a different matter when these social costs are made part of the balance sheet. Similarly, it has been calculated that creating the necessary facilities for US Steel’s greenfield mill at Conneaut—new roads, new railroad sidings, new sewers, etc.—would cost something like $650 for every man, woman, and child who will be coming to live near Conneaut. US Steel, we may be sure, expects someone else to foot that bill, Mr. Speer’s concerns about communism notwithstanding.

Another question of the same sort concerns profitability. In their painstaking preparation for the long-sought meeting with J & L management about shutting down their mill, the officers and grievance committeemen of the Brier Hill local could not deny that J & L’s mill at Aliquippa, Pennsylvania, makes steel more cheaply than the outdated open hearths at Brier Hill. But, as the company conceded, the Brier Hill mills are not operating at a loss. Last year they made a profit while J & L’s Indiana Harbor mill lost $7 to $8 million a month. The choice is not between profit at Aliquippa and loss at Brier Hill, but between more profit at one place and somewhat less profit at another. This being so, it would, at least, be reasonable for the company to postpone closing a profitable factory long enough for the workers to find other ways to make a living.

I have been involved in these events as a lawyer both for the Ecumenical Coalition and for the Brier Hill union. What will happen now depends largely on the fate of the application for the federal Urban Development Action Grant submitted on January 31 by the Youngstown city council on behalf of the Coalition’s plan. This application proposes a phased reopening of the Campbell Works which would also retain jobs at Brier Hill. During Phase I, Community Steel, Inc. would reopen and operate the hot and cold strip rolling mills at the Campbell Works. These facilities, constructed in the 1930s and upgraded in the 1960s when Sheet & Tube invested about $100 million in them, are competitive modern mills. During Phase I the new enterprise would not make its own steel but would purchase slabs from Brier Hill to be rolled into sheets at the hot and cold strip mills. Meanwhile, electric arc furnaces would be installed at Campbell. When they were in place, Brier Hill would close and those workers then employed at Brier Hill who did not wish to retire could move into the new facilities. As in the urban renewal analogy I mentioned earlier, the workers and their families could stay in the community while needed modernization took place around them.

The federal decision whether to support the reopening of the Campbell Works under worker-community ownership will probably be made in the early spring. It will be taken by a coordinating committee, comprised of highlevel representatives of the Departments of Commerce, Housing and Urban Development, and Labor, with Jack Watson, the White House representative, as chairman. Last October this committee set aside $100 million dollars in loan guarantees for a steel project in the Mahoning Valley, but requested further information about marketing, the price of the works to be reopened, and the possibility of government purchase of steel. This research has been done, and the results are promising. Regarding price, for example, J & L has committed itself to sell the land and buildings of the shutdown Campbell Works to the Coalition for $12.5 million if the Coalition can decide before June 1 that it is prepared to buy. Accordingly, the stage appears set for an integrated federal decision on: 1) the UDA Grant to buy the shutdown mills; 2) the Department of Commerce loan guarantees required for modernizing the Campbell Works.

Nobody knows which way the White House will go. Clearly the president wishes to give the impression that he is a careful spender. On the other hand, the president’s response may determine how Ohio votes in 1980. In last fall’s congressional election the Mahoning Valley elected its first Republican since the Depression, defeating Charles Carney, the long-time incumbent. Carney paraded the secretaries of HUD and Labor, Senator Kennedy, Vice President Mondale, Ambassador Strauss, and other dignitaries through northeast Ohio, but the voters were not impressed. They evidently felt that the established leaders—whether of the steel business, the unions, or the Democratic Party—had let them down. Whether worker-community ownership is tried in Youngstown probably depends on how clearly Mr. Carter understands that workers here will vote against a president who fails to provide them with jobs.