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.
The irony is that Nucor has a solid profit sharing program with its employees. In 2022 they paid close to $1B to their 31,000 employees, which translates to over $30k per employee.
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...
Steel had a stifling culture that crushed innovation. My grandfather invented a technology that would soon be used in 99% of steel making worldwide. He tested it out at US Steel ET because he was friends with the operators and they were looking for a solution. They had to actively hide it from the research group or it would have been shut down and buried with years of research and impact studies. Whe he walked in to Ed Speers' office with the invention, the CEO was intrigued and excited. He asked where it had been tested. When my grandfather told him, he exploded, "Who told you, you could try that out at one of my mills?!" My grandfather responded "well with an attitude like that, nothings ever gonna fucking change is it?"
During my career we brought many innovations to the which died in the morass of US Steel research and bureaucracy.
That explanation doesn't really make sense. It's cheaper to abandon a partially depreciated facility and build a new one than it is to just build a new facility. You can at least recoup some value from the existing facility (even if it's only tax write offs and scrap metal). Besides, it's rarely the case there is no value to your existing expertise and capital.
Rather, the issue is psychological/social. There are going to be people in the company with vested interests in the success of the existing factories and humans suffer the sunk cost fallacy. As such there is often resistance to revolutionary innovation inside a company.
Also the incentivizes favor complacency. At an established company you rarely lose your job for continuing to do things in roughly the same way but trying something revolutionary and failing badly likely will be the end of your career. But you don't have the huge monetary rewards as you do in a startup where you stand to gain huge amounts from stock/options.
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."
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.
protectionism only really works when your government is results-oriented and chooses to protect "national champions" from being snuffed out by foreign competition. instead, every new world regime from canada to argentina prefers to tariff and redirect those funds to well-connected cronies. the end result is paying people to make garbage and sliding into irrelevance.
Historically, protectionism works very well. Every developed nation has relied on it. It's a major tactic from Friedrich List's early 19th century playbook and it still works today. In every case, there were well connected cronies who made out like bandits. If you pay attention to the throwaway one-liners in Korean sitcoms, for example, and you'll have a different view of the chaebois and the Koran miracle.
As you say, the government has to be results oriented, so it can accept a fair bit of what Tammany Hall called honest corruption, that is, corruption that gets results. It's one thing if the money just gets wired to a Swiss bank account. It's another if some well connected people get rich as long as they get the job done. I wouldn't be worrying about people making garbage either. Sure, we're wasting money producing corn ethanol, but we've wasted money on stupider things, and some of those things have been long term winners.
meanwhile 1960s UK industrial policy was to spend whatever was left in their coffers so vastly uncompetitive can buy raw materials and make products nobody wants
My understanding is that studies of buisnesses basically reveal this lack of innovation is true of almost all large companies.
Basically, Innovation comes primarily from startup competitors or from companies that are desperate because they are about to be undercut by competitors.
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?
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.
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.
The irony is that Nucor has a solid profit sharing program with its employees. In 2022 they paid close to $1B to their 31,000 employees, which translates to over $30k per employee.
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...
Steel had a stifling culture that crushed innovation. My grandfather invented a technology that would soon be used in 99% of steel making worldwide. He tested it out at US Steel ET because he was friends with the operators and they were looking for a solution. They had to actively hide it from the research group or it would have been shut down and buried with years of research and impact studies. Whe he walked in to Ed Speers' office with the invention, the CEO was intrigued and excited. He asked where it had been tested. When my grandfather told him, he exploded, "Who told you, you could try that out at one of my mills?!" My grandfather responded "well with an attitude like that, nothings ever gonna fucking change is it?"
During my career we brought many innovations to the which died in the morass of US Steel research and bureaucracy.
That explanation doesn't really make sense. It's cheaper to abandon a partially depreciated facility and build a new one than it is to just build a new facility. You can at least recoup some value from the existing facility (even if it's only tax write offs and scrap metal). Besides, it's rarely the case there is no value to your existing expertise and capital.
Rather, the issue is psychological/social. There are going to be people in the company with vested interests in the success of the existing factories and humans suffer the sunk cost fallacy. As such there is often resistance to revolutionary innovation inside a company.
Also the incentivizes favor complacency. At an established company you rarely lose your job for continuing to do things in roughly the same way but trying something revolutionary and failing badly likely will be the end of your career. But you don't have the huge monetary rewards as you do in a startup where you stand to gain huge amounts from stock/options.
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."
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.
protectionism only really works when your government is results-oriented and chooses to protect "national champions" from being snuffed out by foreign competition. instead, every new world regime from canada to argentina prefers to tariff and redirect those funds to well-connected cronies. the end result is paying people to make garbage and sliding into irrelevance.
Historically, protectionism works very well. Every developed nation has relied on it. It's a major tactic from Friedrich List's early 19th century playbook and it still works today. In every case, there were well connected cronies who made out like bandits. If you pay attention to the throwaway one-liners in Korean sitcoms, for example, and you'll have a different view of the chaebois and the Koran miracle.
As you say, the government has to be results oriented, so it can accept a fair bit of what Tammany Hall called honest corruption, that is, corruption that gets results. It's one thing if the money just gets wired to a Swiss bank account. It's another if some well connected people get rich as long as they get the job done. I wouldn't be worrying about people making garbage either. Sure, we're wasting money producing corn ethanol, but we've wasted money on stupider things, and some of those things have been long term winners.
meanwhile 1960s UK industrial policy was to spend whatever was left in their coffers so vastly uncompetitive can buy raw materials and make products nobody wants
My understanding is that studies of buisnesses basically reveal this lack of innovation is true of almost all large companies.
Basically, Innovation comes primarily from startup competitors or from companies that are desperate because they are about to be undercut by competitors.
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?
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.
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.
Andrew Carnegie supposedly said "We cannot control our price. That is decided by the market. We can only control cost."
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.