Last week, US Steel announced it was being acquired by Japanese steel company Nippon Steel. The milestone gives an opportunity to look back at what once was the largest and most important company in the US (and arguably the world), and how it slowly declined. Prior to the acquisition announcement, US Steel had a market cap of around $8 billion, not even enough to put it in the Fortune 500 (it would come in at around #690, slightly below the
The rise of mini-mills like Nucor in the '80s and '90s was ignored by the lame-stream media of the day. Also, Nucor was a non-union shop, so they were often equated to insect-life by labor sympathetic journos.
I'm not sure that "management as prime mover for innovation or stagnation" really has as much explanatory power as you say here.
Basically every capital-intensive industry has always offered a substantial "second mover advantage" to firms attempting to catch-up, because it's ruinously expensive to abandon partially-depreciated production facilities and replace them with new technology.
This has been true for steel, semiconductors, optoelectronics, solid-state memory, automobiles, appliances/white goods...
When I read Tadeusz Sendzimir's biography (Steel Will) it said the same stuff about the postwar US steel industry ignoring efficiency and only building more capacity. Apparently in the 1950's-1960's Sendzimir was selling their rolling mills like hotcakes to the Germans and Japanese, while the big US steel producers mostly ignored it. Andy Grove's phrase is true in many areas, "Success breeds complacency. Complacency breeds failure. Only the paranoid survive."
Darlington SC is located on the coastal plain. It doesn’t have iron ore, coal or access to hydro electric power. It does have junk cars and access to nuclear power. NUCOR built a successful steel mill there providing steel and good paying jobs.
In 1968, my 9th grade social studies teacher explained that the US steel industry was flubbing it by failing to adopt the basic oxygen furnace. (I only recently found out that it's called "basic" because the heating chamber is lined with alkali materials.) After World War II, US industry management got fat and lazy. The steel industry paid for it as did the the automotive industry. By 1968, Volkswagen had managed to bite off 10% of the automobile market selling their weird looking cars and minivans.
Right now, the US is holding on to the high end processor market thanks to heavy government subsidies, but we've seen Intel fall way behind the curve. Management there never recognized the increasing importance of minimizing power consumption for portable devices. We've seen Boeing completely melt down despite massive subsidies. It's like, once again, watching Kodak ignore and belittle digital photography or GM and Ford dismiss the fuel efficient, easy to repair Beetle.
IBM in its day was noted for its slow rate of innovation. A lot of this was the corporate need for backwards compatibility. For most of a decade, the primary use of IBM 360 processors was to emulate IBM 1401 processors. IBM at least had a good excuse for moving slowly. The usual impediment is that innovation is risky and much more expensive than lobbying or union breaking. One can create a lot of shareholder value by ignoring the future. The trick is to bail out in time and let others pick up the pieces.
P.S. No article on steel is complete without a reference to Smil's "Still the Iron Age", his wonderful, technical history of iron and steel making.
The long term impacts of lack of innovation are institutional death. It had stayed alive as an institution by capturing political advantage. Is Intel going the same way?
This was a great article; thank you! Here in Canada we see this mentality in basically every industry where "protect the Canadian company from foreign competition" is seen as more important than innovation and efficiency.
Fascinating summary, especially for anecdotal insight into the behavior of big companies as they pass from mature to sclerotic.
Do you think regulatory capture and political games are _actually_ cheaper than investing in long-term innovation? I get the impression that it's pretty expensive to do heavyweight political lobbying since you have to interface at many levels of government. Lots of staff, etc. Or are politics just easier for the kind of people who (seemingly inevitably) end up in charge of super corps like US Steel?
Also, is this kind of "all in on regulatory catch-and-extract" strategy particular to that time of American history? I work for a big-5 tech company and while the whole beast certainly isn't "nimble" and we do plenty of politics, we still make very big bets on new verticals that are at minimum major expansions of our existing tech in ways that our competitors -- big and small -- haven't tried yet. Definitely not "No invention, no innovation"... or maybe we're just not old enough yet.
A very good piece. It amazes me in light of the availability of testaments like these that anyone can seriously argue for the benefits of monopolism. It’s patently clear that monopolism, indeed maybe even consolidation itself, is psychologically aligned to so many things - risk aversion, politicisation, regulatory capture, wielding scale to bully smaller fry, reserving surplus from consumers instead of passing it on to them - that kneecap economies and turn live players dead.
The lesson inevitably distills down to this: if you decide to run a company - beware scale.
Great piece. One surprise for me was the first graph of the post, which showed the price of steel over time. That graph shows the industry got almost no benefits from learning or scale in the past 125 years. But you have previously published that a learning curve existed for labor in the steel industry, and others have published that one existed for energy. So why have real prices not dropped?
This was a great article - thanks for taking the time and effort to write it.
Your conclusion, "Arguably, US Steel has been a disappointment since the day it was formed." is one of the most brilliant, insightful things I've read in the area of business writing.
From a layman: this was fascinating to read. So clearly constructed and interesting. Thank you!
The rise of mini-mills like Nucor in the '80s and '90s was ignored by the lame-stream media of the day. Also, Nucor was a non-union shop, so they were often equated to insect-life by labor sympathetic journos.
I'm not sure that "management as prime mover for innovation or stagnation" really has as much explanatory power as you say here.
Basically every capital-intensive industry has always offered a substantial "second mover advantage" to firms attempting to catch-up, because it's ruinously expensive to abandon partially-depreciated production facilities and replace them with new technology.
This has been true for steel, semiconductors, optoelectronics, solid-state memory, automobiles, appliances/white goods...
When I read Tadeusz Sendzimir's biography (Steel Will) it said the same stuff about the postwar US steel industry ignoring efficiency and only building more capacity. Apparently in the 1950's-1960's Sendzimir was selling their rolling mills like hotcakes to the Germans and Japanese, while the big US steel producers mostly ignored it. Andy Grove's phrase is true in many areas, "Success breeds complacency. Complacency breeds failure. Only the paranoid survive."
Darlington SC is located on the coastal plain. It doesn’t have iron ore, coal or access to hydro electric power. It does have junk cars and access to nuclear power. NUCOR built a successful steel mill there providing steel and good paying jobs.
In 1968, my 9th grade social studies teacher explained that the US steel industry was flubbing it by failing to adopt the basic oxygen furnace. (I only recently found out that it's called "basic" because the heating chamber is lined with alkali materials.) After World War II, US industry management got fat and lazy. The steel industry paid for it as did the the automotive industry. By 1968, Volkswagen had managed to bite off 10% of the automobile market selling their weird looking cars and minivans.
Right now, the US is holding on to the high end processor market thanks to heavy government subsidies, but we've seen Intel fall way behind the curve. Management there never recognized the increasing importance of minimizing power consumption for portable devices. We've seen Boeing completely melt down despite massive subsidies. It's like, once again, watching Kodak ignore and belittle digital photography or GM and Ford dismiss the fuel efficient, easy to repair Beetle.
IBM in its day was noted for its slow rate of innovation. A lot of this was the corporate need for backwards compatibility. For most of a decade, the primary use of IBM 360 processors was to emulate IBM 1401 processors. IBM at least had a good excuse for moving slowly. The usual impediment is that innovation is risky and much more expensive than lobbying or union breaking. One can create a lot of shareholder value by ignoring the future. The trick is to bail out in time and let others pick up the pieces.
P.S. No article on steel is complete without a reference to Smil's "Still the Iron Age", his wonderful, technical history of iron and steel making.
The long term impacts of lack of innovation are institutional death. It had stayed alive as an institution by capturing political advantage. Is Intel going the same way?
Andrew Carnegie supposedly said "We cannot control our price. That is decided by the market. We can only control cost."
This was a great article; thank you! Here in Canada we see this mentality in basically every industry where "protect the Canadian company from foreign competition" is seen as more important than innovation and efficiency.
Good article, thanks for writing!
The fact that US steel has been declining for a century and still exists speaks for its immense size and power in the beginning.
The story really makes me wonder what other companies are a hindrance to innovation due to their market power, especially in tech.
Fascinating summary, especially for anecdotal insight into the behavior of big companies as they pass from mature to sclerotic.
Do you think regulatory capture and political games are _actually_ cheaper than investing in long-term innovation? I get the impression that it's pretty expensive to do heavyweight political lobbying since you have to interface at many levels of government. Lots of staff, etc. Or are politics just easier for the kind of people who (seemingly inevitably) end up in charge of super corps like US Steel?
Also, is this kind of "all in on regulatory catch-and-extract" strategy particular to that time of American history? I work for a big-5 tech company and while the whole beast certainly isn't "nimble" and we do plenty of politics, we still make very big bets on new verticals that are at minimum major expansions of our existing tech in ways that our competitors -- big and small -- haven't tried yet. Definitely not "No invention, no innovation"... or maybe we're just not old enough yet.
A very good piece. It amazes me in light of the availability of testaments like these that anyone can seriously argue for the benefits of monopolism. It’s patently clear that monopolism, indeed maybe even consolidation itself, is psychologically aligned to so many things - risk aversion, politicisation, regulatory capture, wielding scale to bully smaller fry, reserving surplus from consumers instead of passing it on to them - that kneecap economies and turn live players dead.
The lesson inevitably distills down to this: if you decide to run a company - beware scale.
Great piece. One surprise for me was the first graph of the post, which showed the price of steel over time. That graph shows the industry got almost no benefits from learning or scale in the past 125 years. But you have previously published that a learning curve existed for labor in the steel industry, and others have published that one existed for energy. So why have real prices not dropped?
"American Steel" is a great read. It focuses on Nucor and the building of the first continuous casting mill in the us.
Also lots of generally interesting background on the us and global steel industry.
An excellent history of one of the most important corporations in world history.
This was a great article - thanks for taking the time and effort to write it.
Your conclusion, "Arguably, US Steel has been a disappointment since the day it was formed." is one of the most brilliant, insightful things I've read in the area of business writing.