US steel industry productivity transformation (1980-1990)

Productivity from 150 to nearly 300 pounds per man-hour over the 1980s, with employment dropping from 500,000 to 250,000 — Tom's "threat of extinction sharpens the mind" lesson.

Today ninety-eight percent of all the steel in the world is continuously cast. You can buy continuous casters that are only four or five stories tall for what we call mini-mills. They don't put out 10 million tons of steel a year in one mill, they put out 2 million tons of steel a year, much lower capital cost. But there's a problem in the industry in 1980. By 1980 you have this continuous casting coming online, and it's changing the entire economics of the steel industry. It's also cutting jobs by a factor of two. If you have usage or tons poured staying constant for 10 years, but you have productivity going up by a factor of two, from pounds per man-hour back here at 150 up to nearly 300 — productivity goes up by a factor of two, but consumption stays constant — what happens to employment? It drops from 500,000 down to 250,000.

Productivity figures — 6 person-hours/ton in 1975, half an hour/ton by mid-'90s, under 20 minutes/ton today. The Saugus Ironworks comparator (4,000 hours/ton). Necessity-is-the-mother-of-invention framing.

That 21st century research thing — the Defense Department wanted to know what type of material they were going to use. The Army did a big study in the late '90s, because you had managers in government and in industry and the Wall Street Journal and everything saying the steel companies are dying. Another part of my future-of-metals paper: did you know the productivity of manufacturing in the United States went up like four percent a year in the 1980s, when the Japanese were killing us in the marketplace? We still had the highest productivity in the world in the United States, per man-hour. The steel industry was double the manufacturing average. And the industry that was three times the average of manufacturing was the mining industry. Everybody said these industries were terrible because they were losing jobs. Well, when you have a doubling of productivity in ten years, and not a super increase in consumption, guess what happens to jobs — they decrease. You don't have to be a rocket scientist economist to know that if your consumption is constant and your productivity doubles, your employment goes down by a factor of two.

Constant 100M tons/year output with workforce halved from 500K to 250K. Mining industry close to 10%/year productivity gain; both were the era's outperformers. ## Figures referenced

Now the problem was, the steel industry was losing its shirt back then. There was a guy named Mittal in India — anybody ever heard of Mittal, M-I-T-T-A-L? He knew that steel was an important material, and he went around buying up these old steel plants. There were plenty of steel plants for sale, and the reason was, with the Arab oil embargo and stuff in the 1980s, the United States had used a hundred million tons of steel a year — I've got plots, it's actually in this article — a hundred million tons a year, century constant. But at the same time the employment went from half a million steel workers to two hundred and fifty thousand steel workers in ten years. You'd read in the Wall Street Journal the steel industry was dying — they were laying off half their workers over ten years. Wait a second: it had constant consumption, the employment to produce it went down by a factor of two — what happened to productivity? It went up by a factor of two. I did that one in my head. If half the people produce the same amount of product in 1990 as they did in 1980, productivity doubled.

Across the 1980s, US steel consumption held roughly constant (~100 million tons/year, ~76 million domestic + ~25 million imported), but employment fell from ~525,000 to ~275,000 — a 2× productivity gain driven by the BOP transition and continuous casting adoption. The industry was reinventing itself even as conventional wisdom held it was dying.

So why don't we take a break and come back at about 8:35. To show that I'm not the only person who believes iron is important, Rudyard Kipling put this together. He said, "Gold is for the mistress, silver for the maid, copper for the craftsman cutting at his trade. 'Good,' said the baron sitting in his hall, 'but iron, cold iron, is master of them all.'" Steel has properties that are vastly superior to many other things.

Tom's "incumbents can't be assumed static" lesson, framed via the 6%/year productivity gain in US steel during the 1980s. 100M tons/year production constant, employment from 500,000 to 250,000 — productivity doubled. Mini-mills now the most productive in the world. Includes Tata acquisition vignette.

That's an important lesson I've seen over and over: you can't assume that the competitor is going to remain static. People who have billion-dollar businesses — they might not do anything when they're fat, dumb, and happy, but when they see the competition coming they start to think. For example, the average productivity gain across all of US manufacturing in the 1980s was 1% growth. In the service sector it was actually negative, because we started using PCs and they actually lowered the productivity. Those old PCs were just a time waste to use. They got a little better and so we kind of got over that hump, but initially they produced the perfect enemy.