THE GLOBAL RESTRUCTURING OF THE STEEL INDUSTRY ppt

THE GLOBAL RESTRUCTURING OF
THE
STEEL INDUSTRY
The steel
indu
str
y is one of man y major wo rld
ind
ustries extensively
restructured in this era of globalization.
The Global Restructuring of the
Steel Industry explains how and why the steel industry has shifted from
advanced capitalist c
ountr
ies to late industrializing c
ountr
ies.
Drawing upon case studies of the steel industry in the US, Japan, South
Korea, Brazil and India, Anthony P.D'Costa examines the relationship between
industrial change and institutional responses to technological diffusion. He
reveals that governments' and firm s' differing responses to innovations lead
to an uneven diffusion of technology and industrial reorganization. Moreover,
when it becomes clear that existing institutional a
rra
ngements no longer serve
the industry well, new a
rra
ngements are made which allow for innovative
beh aviour. O fte n
th
is has cr e

at
ed oppo rt uni
ties
f
or
t
echn
ol ogical
"leapfrogging" and the emergence of new technologies in unexpected places.
The steel industry has consequently kn own a new dynamism and the open-
ended n
atur
e of capitalist c
omp
etition has been firmly und erscored.
The Global Restructuring of the Steel Industry is a timely addition to the
literature of world industries and offers valuable insights into the new dynamics
of industrial capitalism in the globalized age.
Anthon
y P.D
'Co
sta
is Associate P
rof
essor of Comparative
Int
ern
ational
Devel
opm

ent
at the University ofWashington, Tacoma, USA. He has written
on ind ustrial restructuring in Asia, Latin America and the US and is
curr
ently
researching technology leapfr ogging in the Indian sof
twa
re industry.
ROUTLEDGE STUDIES IN
INTERNATIONAL BUSINESS AND
THE
WORLD
ECONOMY
1 STATES AND FIRMS
Multinational enterprises in institutional competition
Razeen Sally
2 MULTINATIONAL RESTRUCTURING, INTERNATIONALIZATION
AND SMALL
ECONO
MIES
The Swedish case
Thomas Andersson,
Torbiorn Fredriksson and Roger Svensson
3 FOREIGN DIRECT INVESTM ENT AND GOVE
RN
MEN
TS
Catalysts for economic restructuring
Edited by John H.Dunning and Rajneesh Naru la
4 MULTINATIONAL INVESTMENT AND

ECONO
MIC STRUCTURE
Globalization and competitiveness
Rajneesh Narula
5 ENT REPRENEURSHIP IN A GLOBAL
CONTEX
T
Edited by Sue Birley and Ian Macmillan
6 THE GLOBAL STRUCTURE OF FINANCIAL MARKETS
An overview
Edited by Dilip K.Ghosh and Edgar Ortiz
7 ALLIANCE CAPITALISM AND GLOBAL BUSINESS
John H.D unning
8 MULTINATIONAL ENTERPRISESFROM THE NE
THE
RLANDS
Edited by Roger van Haese! and Rajneesh Naru la
9 COMPETIT
ION,
G
ROWTH
STRATEGIES AND THE GLOBALIZAT
ION
OF SERVICES
Real estate advisory services in Japan, Euro pe and the United States
Terrence LaPier
10 EUROPEAN INTEGRATION AND FOREIGN DIRECT INVESTMENT
IN THE EU
The case of the Korean consumer electronics industry
Sang Hyup Shin

11 NEW MULTINATIONAL ENTERPRISESFROM KOREA AND TAIWAN
Roger van Haese!
12 COMPETITIVE INDUSTRIAL DEVELOPM ENT IN THE AGE OF
INF
ORM
ATION
The role of co-operation in the technology sector
Edited by Richard ].Braudo and Je
ff
rey G.Macintosh
13
TH
E GLOBAL RESTRUCTURING OF
TH
E STEEL IND USTRY
Innovations, institutions and industrial change
Anthony
P.
D 'Costa
14 PRIVATISAT
ION
AND LIBERALISATION IN EUROPEAN
TELEC
OMMU
NICATIONS
Comparing Britain, the Netherlan ds and France
Willem Hulsink
THE
GLOBAL
RESTRUCTURING

OF
THE
STEEL
INDUSTRY
Innovations, institutions
and
industrial change
Anthony
P.D-'Costa
London
and
New
York
First published 1999
by Routledge
11 New Fetter Lane, London EC4P 4EE
This edition published in the Taylor & Francis e-Library, 200 3.
Simultaneously published in the USA and Canada
by Routl edge
29 West 35th Street, New York, NY 10001
© 1999 Anth ony P.D'Costa
All rights reserved. No p
art
of this book may be reprinted or
reproduced or utilised in any f
orm
or by any electronic,
mechanical, or other means, now kno wn or hereafter
invented, including photocopying and recording, or in any
information storage or retrieval system, witho ut permission in

writing from the publishers.
British Library Cataloguing in Publication Data
A cata logue record for this book is available from the British Library
Library
of
Congress Cataloguing in Publication Data
D' Costa, Anth ony P., 195
7-
The global restructuring of the steel industry: innovations,
institutions, and indu strial change/Anth ony P.D'Costa.
p. cm.
Includes bibliographical references and index.
1. Steel industry and trade. 2. Steel ind ustry and trad
e-
Government policy. 1. Title.
HD
9510
.5.D38 1999
338
.47669
142
D
c21 98- 276 03
CIP
ISBN 0-203-42522-7 Master e-book ISBN
ISBN 0-203-445 94-5 (Adobe eReader Format)
ISBN 0-415-14827-8 (Print Edition)
TO
AVERIC, CAMILLE, AND THEIR
GRANDPARENTS

CONTENTS
~~~
~
~
List of tables
Xl
Foreword X
lll
Ackn
owl
edgem
ent
s X
Vll
1
The
restructuring of the steel industry 1
Int
roduction 1
Ex plaining industrial restructuring 2
Outline of chapters 8
2 An institutional interpretation of steel industry
restructuring: an analytical framework 11
Int
roduction 11
The restru cturing issue 12
Technology and restructuring: an analytical framework 21
Conclusion 28
3 Technological change

and
crisis in the American steel
industry 30
Int
roduction 30
Strategic adoption of n
ew
innovations 37
The crisis compounded 43
Crisis-inspired restructuring:disinvestment and institutional change 48
Conclusion 55
4 Technological change
and
rapid
industrial development
in
Japan
and
South Korea 57
Int
roduction 57
State-led late indu strialization 58
Institutional response to n
ew
innovations 67
Vll
CONTENTS
Exc
ess capacity, maturity, and Japanese restructuring 72
Conclusion 80

5 Technological change
and
institutional challenges in
Brazil, India,
and
Korea 82
Introduction 82
State-led capitalist industrialization 83
Ov
ercoming structural dependence 88
Institutional challenges to industrial restructuring 95
Technology diffusion and capability in Brazil, India, and Korea 109
Conclusion: institutional capacity and industrial restructuring
117
6 Technological change
and
the internationalization of the
steel industry 119
Introduction 119
US imports and the changing international division
of
labor 120
Cost
of
production and labor productivity
125
Global realignments in the steel industry 128
Conclusion 137
7 Innovations, entrepreneurial breakthroughs,
and

industry restructuring 140
Introduction
140
The e
me
rgence of minimills 141
Technological breakthroughs in the non-integrated steelmaking
process 148
The diffusion
of
new technologies and restructuring
155
Conclusion: n
ew
technologies and industrial restructuring
165
8 Interpreting technological change
and
industrial
restructuring 169
Introduction 169
Restructuring and capitalist industrialization
170
Institutional change and restructuring 173
Technology, strategy, and the international division
of
labor
177
Conclusion 182
Not

es 184
App
endix: institutions visited and/or contacted for data collection 200
Bibliography 202
~~
2ll
V11l
FIGURES
2.1 A vi
rtuous
cycle of te
chn
ological change and ind ustrial
expansion
26
2.2
An analytical framew
ork
for industrial restructuring 27
3.1
Diffusion of Bessemer and open he
arth
furnaces (OHF) in
the US
32
3.2
Unit operations in steelmaking sequence: integrated blast
furnace-basic oxygen furnace-c
ontinu
ous casting and

minimill (electric arc furnace)
34
3.3
Adop tion of basic oxygen fu
rna
ce (BOF) and c
ontinu
ous
casting (CC) in the US and Japan
41
3.4
Large-sized blast furnaces in the world 42
3.5
Rising steel imports in the US 43
3.6
Relative profitability of the US steel industry (% of equity) 44
3.7
Financing investment in the US steel industry 45
3.8
Excess capacity in the US steel industry 49
3.9
AR
MC
O's
pl
ant
imbalances and
roundin
g-
out

proc
ess
50
4.1
Korean investment in the steel industry
60
4.2
Increasing size of blast furnaces (BFs) and basic oxygen
furnaces (BOFs) in Japan
70
4.3
Convergence of automation in Japan and Korea
72
4.4 Declining capacity utilization in the m
atur
e economies,
197
3-
90 73
4.5
Restructuring and profitability of th e Japanese steel
industry
76
5.1
Output
e
xpa
nsion by the Korean steel industry
89
5.2

Brazilian investment in the steel industry, 19
72-
96 94
5.3
Capacity utilization in Indi a 110
5.4
POSCO 's le
arnin
g curves for blast furnace (BF) operation 113
6.1
The changing division of labor on the US west coast 131
6.2
Changing
patt
ern
of Japanese exports 133
7.1
Rising tr
end
in Japan's electric arc furnace (EAF) size 145
7.2
US scrap supply, 1960-84 147
IX
7.3
7.4
8.1
LIST OF FIGURES
Ispat's expanding steel business
Pl
ann

ed new pl
ant
s and new technologies in India
Dem
and
and supply of steel scra p in Korea
x
161
163
179
TABLES
1.1 Changing st
ruct
ure of global steel
produ
ction (% of total)
3
3.1
Major steel p
roduct
markets by type of operation and
end use
35
3.2
Major
inn
ovations in the steel industry
36
3.3
Investment cost for modernizati on and greenfields 47

4.1
Post-war devel
opm
ent
of the Japanese steel industry 62
4.2
Financing POS
CO
's mills
67
4.3
Continuous casting ratio
71
4.4 The rationalization program of Japanese steel firm s
(1987-96) 78
5.1
Int
egrated steel capacity
expa
nsion in Brazil (million tons)
89
5.2
Investment and expansion of India's integrated public and
private sector steel industry
90
5.3
Comparison of integrated greenfields in Brazil, India,
and Korea
99
5.4

Employm
ent
in the steel industry 102
5.5
Diffusion of mod
ern
technology: basic oxygen furnace (BOF)
and c
ontinu
ous casting
(%)
111
6.1
The changing international division of labor: US imp
ort
structure
(%)
122
6.2
Average cost per ton of production (US$) 126
6.3
Principal foreign j
oint
ventures in the US integrated steel
segment
130
6.4
POSCO 's overseas ventures
135
7.1

The diffusion of electric arc furnace (EAF) technology 142
7.2
Average size of minimill pl
ant
s in the US
and
Japan 144
7.3
Recent technological bre
akthrou
ghs in alte
rna
tive
steelmaking processes
149
7.4
Greenfield investm
ent
costs: minimill and integrated in
the US
152
7.5
Foreign players in US minimills 154
7.6
Diffusion of new minimill technology in the US 157
Xl
LIST OF TABLES
7.7 Restructuring of the Japanese minimill sector 159
8.1 Forecasts of Korean steel industry ('000 tons of crude steel) 171
8.2 India's supply

and
demand position in
2001-2
('000 tons) 178
Xli
FOREWORD
Steel
and
steel-based engineering have long been regarded as the thews
and
sinews of
modern
industrial
and
military
power.
This
was
apparently
demonstrated
yet again in
what
the Japanese call the Pacific War of
1941-5,
where the overwhelming US superiority in ships, airplanes,
and
armaments
gave it victory over
the
indomitable Japanese soldier,

prepared
at all times to
kill or to die for his country or
Emperor-right
or wrong. Governments which
have deliberately
embarked
on a
plan
for industrializing their countries,
therefore, have
paid
special
attention
to the development of an indigenous
steel industry.
This
book
provides a fascinating analysis of the reasons for the staggering
success of the post-World War II Japanese steel industry until it was over-
taken
in international competitiveness by the Korean industry,
and
also a
connected account of the much more mixed record of the Brazilian
and
Indian
steel industries. All these four histories are strongly influenced by state
intervention,
but

with very different outcomes, the reasons for which
D'Costa
sets
out
in this book. His analysis is
not
limited to explaining the differential
fates of the late,
and
late late, industrializers. He sets
them
against
the
background
of
international
competition
in prices, costs of
production,
technology, investment,
and
capacity-building, and provides a succinct account
of the doings
and
the causes of the downfall of the once-mighty US steel
industry.
Most
processing
technologies
connected

with
steelmaking
were
and
continue
to be
characterized
by
strong
economies of scale.
Add
to
that
the
fact
that
large
amounts
of finance are needed to implement best-practice
technologies on scales
that
yield
the
lowest cost,
and
that
steel is a
major
input
in

most
capital goods
and
is likely to experience
strong
ups
and
downs
in
demand,
the
need for large firms in
the
industry
becomes a
matter
of
sheer
common
sense.
The
controllers of
the
US
industry
realized it
better
than
others,
and

through
mergers they
created
the
first billion-dollar firm
in
the
world,
the
US Steel
Corporation.
After
that,
the
steel
industry
in
the
US
went
from
strength
to
strength
and
emerged as
the
leading
producer
of

steel,
with
a very big gap
between
it
and
the
rest of
the
producers,
at
the
X11l
FOREWORD
end of
World
War II.
How
ever, a
capti
ve
and
enormous domestic
mark
et
and
the
oligopolistic
structur
e of

th
e
industry
produc
ed a
complac
ent
and
lethargic
attitud
e
towards
technical ch
ang
e.
Four
decades ago, W.E.G.Salter
exploded the myth
that
in advanced capitalist
countri
es
most
firms use
best-practice technology
most
of the
tim
e. Leads
and

lags in the diffu sion
of technology, industry
structur
e
and
various kinds of
prot
ection or subsidies
enjoye d by
th
e firms
can
gen
erat
e a
larg
e
spr
ead
of
t
echnolo
gy
and
producti
vity. But
the
US steel industry set a r
ecord
of delayed

adoption
of
best-practice technology by setting up most of the 44 million
ton
s of new
capacity in the shape of open h
earth
furnaces when the basic oxygen furnace
(BOF)
had
alr
ead
y
pro
ved itself as
th
e best-practice technology for steel
smelting. The enormous amount of US aid to
the
allies
and
some developing
countri
es,
oft
en embodied in high-cost
products
tied to aid,
contribut
ed to

this d
evelopment
, along
with
th
e risk-averse divisions of an oligopolistic
industr
y
cocoon
ed in a
prot
ected
dom
estic
mark
et.
How
ever, as
soon
as the
Japan
ese
and
the
German
steel industries set up
enough capacity
with
BOF
and

continuous casting (CC) technologies, the US
industry lost its dominance in the export
mark
et
and
found
its
hom
e
turf
thr
eat
ened by
import
s of foreign steel
and
engineering
product
s. The later
history of the US steel industry is one of painful
and
halting
adjustm
ent
and
downsizing,
with
various
kind
s of government help summoned to

prop
up an
ailing giant.
Although this story seems to be
but
a repetition, on a larger scale, of
what
happ
ened to
man
y segments of British industry in an earlier era
with
the then
newly industrialized
countri
es emerging to ov
ertak
e the pioneer, the
Japan
ese
and
the
Kor
ean
challenge to the US
and
man
y segments of the
Europ
ean

steel
industr
y seems to have
impart
ed a new
qualit
y of aggr essiveness to
th
e
comp
etitive
rac
e. This new quality inheres in the fact
that
, while
part
s of
British, American or even continental
Europ
ean
export d
emand
for steel
originated in colonial or dep
end
ent
economies
with
some cushion for high er
prices or

low
er quality,the
Japan
ese
and
the Kor
ean
exports
hav
e dep
end
ed
almost entirely on
comp
etitiveness in price, quality, customer suitability,
and
delivery time.
D' Costa
pro
vides a fascin ating
and
convincing
account
of why,
out
of the
thr
ee
countri
e

s-Bra
zil, India,
and
South Kor
ea-which
can
be said to have
mount
ed a state-led program of development of their respective steel industries
in the post-war period (although in the case of Brazil, thi s effort actually
began in the
1930
s), only Korea has been able to develop an industry which
is
comp
etitive by global standards. Thi s
contra
st in the actual
outcom
e of the
state-led developm
ent
drive, of
cour
se, applies
mor
e or less to the entire
spectrum of indu stries
and
to the economy in general

and
has deep social
and
political roots;
but
it also derives
partl
y from differences in geopolitical
conjuncture.
The gov
ernm
ents of
tho
se states which managed successfully to
promot
e
XI V
FOREWORD
industrialization also
managed
to keep a distance between themselves
and
particularistic economic interests. Even if they strove to
promote
capitalism,
it was the interest of the capitalist class
and
the
economy,
rather

than
of a
particular section,
that
the state
promoted.
By contrast, in the states where
intervention
produced
only
mixed
results, particular sections of capitalists
managed
to influence the decisions of the state, which often
turned
out
to be
inefficient, contradictory,
and
time-inconsistent. State autonomy, of course,
has deep political
and
social roots.
One
major
condition was
that
in the
initial or heroic phase of industrialization, foreign capitalist interests played
no role in government decisions.

Another
condition was the elimination of a
landlord class which
had
often proved a hindrance to the full functioning of
markets
and
the release of entrepreneurial energy even as it acted as an ally
of
foreign
capitalists
interested
in
exploiting
the
domestic
market
for
manufactures in
return
for securing markets for landlord-controlled primary
products. A successful developmental state also sought to educate the whole
population, since learning
how
to learn has been one of the key conditions
for industrial success in the
modern
world.
The implementation of an industrialization plan requires "social capability"
on

the
part
of
entrepreneurs
and
politicians
while
it
also
requires
"macroeconomic capability" on
the
part
of
the
managers of national finance
and
investment. In
the
case of South Korea, the
task
of macroeconomic
management was considerably eased by the availability of enormous quantities
of untied aid
and
military assistance from the US
and
her allies
down
to the

1970s. But the government of
that
country
made
sure
that,
even if initial
investments in
pasco were subsidized, they generated increasing surpluses
over time,
and
thus did
not
become a drain on public sector resources.
More
generally,
the
continued
generation
of a
surplus
by
the
public
sector,
complemented by balance of payments surpluses in the long term, seems to
be a necessary
attribute
of the macroeconomic capability of a developmental
state. By

contrast
with
South Korea,
both
Brazil
and
India were
hampered
by
a
shortage
of foreign exchange
when
shopping
for
the
best technology.
However,
the
difficulties of
the
latter were greatly
compounded
by their
deficiencies in learning
and
decision-making. They generally planned for plants
of suboptimal scale,
burdened
the companies

with
large interest payments,
allowed gestation lags to
grow
beyond the
norm,
failed to recover subsidies
doled
out
by the public sector,
and
devoted
too
little time, decision-makers'
attention
and
resources to the
absorption
of
new
technologies
and
their
upgrading
through
continuous learning.
The last deficiency
can
be illustrated by the contrasting strategy
adopted

by the Japanese to
absorb
BOF technology for steel smelting.
When
the
Japanese found
out
about
the BOF technology invented by an Austrian state
enterprise, they sent
out
several teams with representatives of industry, the
Ministry
of
International
Trade
and
Industry
(MITI) as well as steel
technologists, in
order
to try
and
absorb
the invention as
thoroughly
as
xv
FOREWORD
possible. They also quickly invested large

amounts
in setting up BOFs. In
India, even when the Germans set up the Rourkela plantwith BOF technology,
the
learning process was
tardy
and
halting,
with
inefficient
investment
decisions continually spoiling it. In
both
Brazil
and
India,
but
more damagingly
in the latter, the inefficiencies of small, long-gestation, high-cost plants were
compounded
by
low
rates of utilization which blocked opportunities for
learning
and
incremental productivity improvements. The entryof new private
firms setting up minimills has only mitigated the problem,
but
full adjustment
to new technologies

and
fiercely competitive global conditions will require
vigorous
and
efficient government decisions as well as
new
entrepreneurial
drives.
The
enforced economic liberalization
both
these countries have gone
through
has
made
the state less capable of decisiveness
and
autonomy, even
if
more
private entrepreneurship
may
be waiting for a suitable
opportunity
for investment
and
profit-making.
D'Costa
has
managed

successfully to weave the stories of
growth
and
readjustment of a
major
industry in the developed
market
economies
with
the emergence
and
faltering of new players from developing countries. He
has
thereby
demonstrated
that
trajectories
of
development
and
under-
development of international capitalism are intimatelyconnected. His analysis
of
the
rise of
POSCO
and
the South Korean steel industry as a
major
player

in global
competition
also indicates
that,
despite its recent troubles,
the
remarkable
growth
of the South Korean economy was
not
a fluke,
but
was
based on vigorous decision-making, shrewd bargaining,
and
assiduous learning
during the whole period of its twenty-five-year-old history.
I
hope
other
readers interested in
the
subject of
development
and
under-
development
will find this
book
as

instructive
and
enjoyable
as I
have
found
it.
AMIYA
KUMAR
BAGCHI
Reserve Bank of India Professor
Centre for Studies in Social Sciences, Calcutta
XVI
ACKNOWLEDGEMENTS
To write a
book
on the steel industry at the
turn
of the twenty-first century
might seem like academic lunacy. After all, steel was the heavyweight of the
late nineteenth
and
early twentieth-century industrial capitalism in Britain
and
the US.
With
the proliferation of high-tech industries in
our
time, steel is
no longer the center of attention. Fortunately, the industrial ascent of

Japan
and later South Korea in the second half of the twentieth century and numerous
scholarly studies conducted within the broader field of economic development
have provided intellectual justification to carry out this study. The near limitless
help from the industry representatives
around
the
world-providing
logistical
support
and
supplying
data-contributed
to my sanity in bringing this project
to a close.
I embarked on this study as
part
of my PhD dissertation at the University
of Pittsburgh soon after the devastating
1982
recession in the US. My arrival
in Pittsburgh at
that
time was an eye opener. Accustomed to the typical
developing country problem of
"how
to increase industrial
output"
I was
not

prepared for the idea
that
industrial development was
not
simply a
matter
of
capacity expansion
but
also included cutbacks
and
reduction.
How
to relate
the
two
became
my
central
intellectual
concern.
Already
Immanuel
Wallerstein's "global" perspective had made inroads into established academia
and provided me with an avenue for adoptinga "holistic" approach to explain
global restructuring. But the
broad
sweep of the Wallersteinian
approach
was unable to capture the micro-level details of industrial change. There was

little
room
for agency in his larger system.
Those working within the statist framework provided a welcome break
from this macro-structural perspective in understanding
how
social actors
are able to shape developmental outcomes. The
work
of Peter Evans
and
Alice Amsden,
among
others,
showed
how
industrial
change
could
be
institutionally planned
and
consciously implemented. Others, such as Ann
Markusen, who was instrumental in
many
ways in supporting my study,
sought to empirically establish industrial restructuring as an
important
component of regional industrial shifts in the US, including the steel industry.
That

innovations at the micro level
had
an immense role to play in industrial
XVll
ACKNOWLEDGEMENTS
change was best conceptualized by
Nathan
Rosenberg's pioneering
work
on
technology. By systematically breaking
away
from mainstream economics,
Rosenberg
provided
an
alternative
perspective
to
understanding
the
technological basis for industrial change. Finally, in India, Amiya
Kumar
Bagchi's long-standing critical, historical scholarship on Indian development
and
Ram
Prasad
Sengupta's
command
of the Indian steel industry were

inspirational in carrying
out
this study.
Our
many
conversations over the
years gave me a clearer view of industrial change in the local context. I am
also grateful to Dr Bagchi for his willingness to write the foreword to this
book.
In addition to the intellectual debt owed to the academic community,
acknowledged in citations
throughout
the text, Bob Erickson of Tri-State
Steel
Conference-a
community-based
organization
that
addresses
the
problems of industrial
dislocation-has
been
not
only a good friend
and
supporter of
many
of the ideas presented here
but

also a supplier of reams of
industry-related data.
Most
of all I am indebted to the numerous industry
and
government officials in India,
Japan,
Korea, Brazil,
and
the US
who
gave
me their time with no expectations whatsoever.
It
is
not
possible to mention
all of
them
and
most of these individuals would prefer to remain anonymous.
However, I feel it
would
be fit
and
proper
to acknowledge some of the
institutions they represent for accommodating my
many
requests for

data
and
plant
visits.
The fieldwork was done in several phases (see the Appendix).
It
began in
1987
when I visited India, South Korea, Japan,
and
Brazil. Subsequent
work
of shorter
duration
was carried
out
throughout
the 1990s. In 1987, Arvind
Pande, then the
Head
of
Corporate
Affairs, Steel Authority of India Limited,
arranged for the logistical
support
to carry
out
interviews with the industry
staff, including plant visits in Durgapur and Burnpur. In 1997, as the Chairman
of SAIL, he was kind enough to send me additional statistical information on

the Indian steel industry. In 1996, M.N.Dastur and Company, well-established
steel consultants in Calcutta, also provided research materials.
The Korean
Iron
and
Steel Association arranged my discussions with the
Pohang Iron
and
Steel
Company
and
plant visits in Pohang
and
Kwangyang
in 1987. In 1995, S.B.Hong, Vice-President of POSCO, was instrumental in
arranging the logistical support to meet company officials, inside and outside
of POSCO. Since then, he and his staff have always responded enthusiastically
to my follow-up data requests.
Joohan
Kim of the Korea Institute for Industrial
Economics
and
Trade was also kind enough to send me recent
data
on the
Korean industry.
Shinichi Yasuda of the
Japan
Iron
and

Steel Federation
and
Tadamasa
Sakonji of
Nippon
Kokan
have
been my
principal
contacts
to
obtain
materials on the Japanese industry. In
addition
to organizing my meetings
with
other
firms
and
the Keihin Works, over
more
than
a decade I have
maintained
a professional
relationship
with
both
of
them,

exchanging
XV11l
ACKNOWLEDGEMENTS
information
on the industry.
Nozumo
Kawabata
of
Tohoku
University was
very generous in sending me Japanese government-published statistical
data
on the industry.
In Brazil,
through
the good offices of Luiz Bresser Pereira, then the Finance
Minister of Brazil, I
had
the good fortune to be formally affiliated in
1987
with the Economics
Department
at Fundacao Getulio Vargas in Sao Paulo.
Friends
and
acquaintances provided infrastructural
and
social support to carry
out
fieldwork in Brasilia, while SIDERBRAS,

now
defunct, arranged for the
numerous interviews
and
visits to Acominas in Belo Horizonte
and
Usiminas
in Ipatinga. The staff at the Institute Brasileiro de Siderurgia in Rio de Janeiro
very willingly sent me the
data
I requested.
A project of this nature is inconceivable
without
the financial
support
of
the
many
institutions
that
extended their limited resources. I am especially
grateful to the Center for Latin American Studies, University of Pittsburgh,
which administered the Tinker Foundation's small travel
grant
for my Brazil
fieldwork. As a fellow of the Fulbright
program
(Washington, D.C.)
and
the

American Institute
ofIndian
Studies (Chicago) in 1991
and
1992
respectively,
I was
awarded
funds for a project on the restructuring of the Indian
auto
industry. I was able to carry out some follow-up interviews on the steel industry
in India
and
Japan
during this time as well. In the summer of 1995, a Korea
Foundation Fellowship (Seoul) allowed me to update my
work
on the Korean
steel industry, while the Korea Development Institute provided me with a
congenial intellectual atmosphere. A fellowship from the Korea Program of
the Social Science Research Council,
New
York, enabled me to write up some
of the research carried
out
in 1995.
Makoto
Kojima of Chiba University of
Commerce invited me to Japan as a Visiting Scholar at the University's Institute
of Economic Research. During

that
brief visit in December
1996
I was able
to update my
data
on the Japanese industry. My university in Tacoma has
been supportive of my
work,
even with increasingly tight budgets. A small
grant
in 1995 enabled me to meet several foreign steel technology firms in
Pittsburgh. In 1996, the Founders'
Endowment
Fund of the University of
Washington,
Tacoma
awarded
me a
summer
travel
grant
to
carry
out
additional research on the Indian steel industry.
The bulk of the writing was done in
1997
at the
National

University of
Singapore where I was a Senior Fellow at the
Department
of Economics
and
Statistics. The tropical weather
and
the freedom from administrative duties
certainly made writing a pleasure.
With
the arrival of
our
daughter in late
1997
I
had
to postpone completion of the manuscript. Work continued in
Fayetteville, Arkansas,
and
Minneapolis in the extremely hospitable homes
of my in-laws
and
relatives. A second fellowship from the American Institute
of Indian Studies allowed me to
wrap
up the final chapter in the
warm
and
friendly environs of the city of
Bangalore-before

the full-scale launching of
my research into the Indian software industry. Perhaps a bridge has indeed
been created between the late nineteenth
and
early twenty-first centuries!
XIX
ACKNOWLEDGEMENTS
For every
author
there is always, I
hop
e, a solid sounding
board.
In my
case,
Jan
ette Rawlings has been
mor
e
than
that.
She
not
only
put
up
with
r
eadin
g several versions of a

rath
er dry, perc
ent
age-driven
manu
script-
meticulously editing the
docum
ent line by lin
e-but
also
pro
vided invaluable
suggestions to improve the analysis by detecting inconsistencies
and
oth
er
shortcomings that typically get
con
veniently
hidd
en from the
auth
or. My
h
at'
s off to her for her pati
ent
efforts to improve the m
anu

script. My
par
ents
deserve a special th
ank
you for their unstinting support in my academic
endeavors, even if at times it wa s
not
alw
ays clear to them where it
would
all
l
ead
. I am grateful for their
pati
ence and
und
erstanding. In the end none of
these individu als or institutions are responsible for any of the errors and
omissions.
A.P.D.
Bangalore
xx
1
THE
RESTRUCTURING OF
THE
STEEL INDUSTRY
Intr

odu
ction
Pittsburgh in the nineteenth and early twentieth centuries was the epicenter
of global steel production.
It
housed US Steel, the world's first billion dollar
company. Seventy-five years later, the American steel industry was in a deep
crisis.
Nea
rly 46 million tons (rnt) of steel capacity during the 197
8-
88 period
was phased out, a
third
of which was in the Pittsburgh region alone. In 1988
Carnegie Mellon University in Pittsburgh received a million dollars f
rom
the
Pohang Iron and Steel Company
(p
as
co
)- the state-owned South Korean
f
irm-f
or metallurgical research. Technical staff from newly f
orm
ed nations
in the 1950s and 1
960

s were sent to Carnegie Mellon for training in the art
and science of steelmaking. At the time Korea was too poor and politically
disorganized to even c
ont
emplate constructing a steel mill. Today pasco is
the world's second largest steel firm with an an
nua
l revenue of over $10
billion. Thus the en
dow
ment to Carnegie Mellon was more than a gift; it was
a m
ark
of c
omm
ercial cl
out
and industrial success. Its financial and techn ical
collaboration with US Steel was another sign of shifting industrial power.
The industry had come full circle with US Steel's preemin
ent
global position
now reduced to
numb
er six.
In the 1980s other changes were in the offing. Kenneth Iverson of
NUCO
R,
a steel industry maverick, challenged US Steel and other large American
produc

ers on their own
turf
by risking new te
chn
ologies to produce smaller
volumes of low value steel efficiently. The diffusion of a new generation of
minimills in the US and elsewhere injected a new lease of life for the industry
as a whole and reduc ed entry barriers for
cap
ital-scarce economies. Halfway
aro und the world, the Mittal br
oth
ers from India were busy expanding their
steel business, not only in India,
but
in overseas m
ark
ets as well. Starting
with small pl
ant
s in Indonesia and India, since the 1980s the Mittal family
has been investing in new technologies and acquiring steel mills in Mexico,
Ca
na
da, Irel
and
, Germany, and Kazakh stan.
Entr
epr
en

eur
ialism and
innovations in the steel industry are alive and well in new and often unexpected
places.
1
THE
RESTRUCTURI NG OF
THE
STEEL INDUSTRY
The
1980s
also
mark
ed
the
end of
the
tradition
of
th
e
stat
e-owned
steel industry.
The
aggressive
privatization
of Brazil's
integrat
ed steel

industry initiated by Presid
ent
Collor de Mello in
th
e late
1980s
transf
err
ed
n
early
80 perc
ent
of Brazilian steel
output
to
privat
e entities. In
1991,
India for th e first tim e in the
post-ind
epend
ence p
eriod
is privatizing public
s
ector
firms,
including
steel,

and
has
opened
th
e
int
egrat
ed steel s
ector
to
individual
entr
epren
eurs.
With
freer
play
of
market
forces,
th
e gigantic,
oligopolistic
industry,
onc
e a
favorit
e s
ector
of

gov
ernm
ents
for
transforming
economi
es, is
now
und
er
competitive
pressure.
No
longer
insulated,
th
e heavy
industr
y is
finding
ways
to b
ecom
e l
ean
er.
For
eign
partn
ers are w

elcom
e in sharing projects
and
on
th
e
whole
the
industr
y
has
becom
e
mor
e
trans
nationaliz
ed.
The
purpos
e of this study is to explain
thr
ee main developments in the
industry
that
hav
e led to the
continuous
restructuring of steel
production

capacity (see
D'Costa
1995a)
. This is essentially a process of reorganizing
and
adjusting capacity under changingconditions.
Th
e first developm
ent
is a
spatial one. Global steel
production
is no longer confined to th e US
and
Western Europe (see Table 1.1). Late industrializers such as
Japan,
Brazil,
and
Kor
ea have
brok
en the
monopol
y of US
dominanc
e.
More
importantl
y
there has been an absolute decline in steelmaking capacity in the US. This

calls for an examination of expansion
and
contraction
of industrial capacity
in the
world
economy as exemplified by the ascent of
Kor
ea's pasco
and
the decline of usSteel.
Th
e s
econd
developm
ent
is th e dis
equilibrium
set in
motion
by
new
innovations. New investm
ent
and
m
ark
et
opportuniti
es

hav
e been opened
up,
chall
enging
the
tr
aditional
larg
e-scale,
int
egrat
ed
produc
ers
with
alternative, smaller,
and
mor
e flexible minimills.
Th
e US steel industry has
been rejuv
enat
ed
and
entry barriers for entrepreneurs els
ewh
ere have been
lowered. Consequently, further reorganization of steelmaking capacity

must
be acknowledged.
Th
e
third
new developm
ent
is institutional change.
No
longer are gov
ernm
ents as deeply engaged in the
industr
y as they
hav
e been
since the post-war period (see Table 1.1 ). Increasingly entrepreneurs
and
the
pri
vat
e
corporat
e sector
around
the
world
are entering the industry
and
internationalizing it in an

unpr
eced
ent
ed way.
Explaining
industrial
restructuring
A popular explanation for industrial restructuring is changing comparative
advantage (Lawrence 1984; Balassa 1985). Aswages increase, costs of producing
steel increase in
the
US,
making
low-wag
e developing areas
formidabl
e
competitors.Thus shifts in industrial production are driven by changing prices.
A
mor
e
institutionally
driv
en p
erspectiv
e also explains
th
e
changing
international division of labor on the basis of

low
wag
es (Froebel et at. 1981).
Multinational
capital
in se
arch
of
low
wages reorganizes its
manufacturing
2
Table 1.1 Changing structure of global steel production (% of total)
1960 1970 1980
1990
1996
Topfirms and their world rankingsfor
1976-
1987
-1996
Brazil
0.95 1.29
3.32
4.18
5.50
SIDERBRAS:
39-3-NA
(state-owned
industry, recently privatized)
India

1.36
1.50
2.06
3.02 4.75
SAIL:
18-14-7
(state-owned)
Japan 9.18 22.30
24.16 22.42
21.55
Nippon Steel:
1-1-1
(private with state
intervention)
South Korea
-
.
0.11
1.86 4.70
8.48
POSCO:
43-6-2
(stare-owned)
Taiwan
0.05
0.07
0.92 1.94
2.69
China Steel: 1996 rank 24 (stare-owned)
Western Europe

45.22
38.59
35.04
32.99
35.48
British Steel:
4-3-3
(now private)
Usinor-Sacilor (France):
12-2-4
(state-owned)
US
37.36
28.51
22.00
18.23 20.65
US Steel:
2-11-9
(private)
World capitalist 241.06 418.44
461.05 492.62 458.50
b
production (rnt)
Sources: Ame rican Iron and Steel In
stitut
e, Annual Statisti cal Repo rt, v
ariou
s years;
Int
ern

ation
al Iron and Steel In
stitut
e, Int ernational Iron
and Steel Statistics,
variou s years
No tes
a = negligible
b excludes former East Euro pean bloc, Soviet Union, China, and North Korea, total output may vary due to different classification of countries in
different publications
mt =million metric tons
NA =
not
applicable
THE
RESTRUCTURING OF
THE
STEEL INDUSTRY
activities on a global basis. Persuasive as they seem, these explanations are
inadequate to
account
for the changes in the steel industry. Steel is neither a
low-wage
product
nor
is its price determined by the logic of the
market.
There is very little
multinational
ownership of the industry. In addition,

government intervention has been
common,
distorting prices in significant
ways.
If
changing comparative advantage is indeed behind the industry'sglobal
reorganization
and
low
wage is
not
a factor,
then
something
other
than
wage
costs
must
give rise to changing advantage. It is also
common
knowledge
that
comparative advantage
can
be constructed by government investments
and
technology policy (both are
non-market
interventions). Both have the

effects of raising
productivity
and
shifting
production
costs favorably.
Therefore,
rather
than
rely on
the
market-based price-driven
argument
in
which the role of technology is assumed away, I will advance an institutional
understanding of technological change in
the
larger capitalist
context
to
explain changing industrial competitiveness.
We live in a
capitalist
world
and
industrial
production
is driven by
commercial
motives. In this

world
we
can
only
assume
that
industrial
expansion is a good thing
and
industrial contraction is a problem. Technology
is a key
determinant
of industrial production. I argue
that
the uneven spread
of steel capacity is a consequence of the uneven diffusion of technology. Those
with superior technology are able to out-compete their rivals, leaving the
laggards in considerable disarray. Firms
and
entrepreneurs of course
make
strategic choices, circumscribed no
doubt
by the commercial
and
institutional
environment in which they operate. Past choices
and
future expectations also
dictate

current
technology choices. Innovations are
not
exogenously given
but
are integral to capitalist competition. Thus restructuring is driven by
differential access to technology
and
is subject to the imperatives of capitalist
competition
and
the idiosyncratic
nature
of technological change. To explain
why the US, the industry leader,
can
get technologically behind while late
industrializers like
Japan
and
Korea
can
forge
ahead,
a
more
nuanced
understanding of technology strategy in its
proper
institutional setting

must
be sought.
Like any system, capitalism is subject to crisis. Falling
demand
or excess
supply are typical
problems
of capitalism.
Adjustment
to imbalances is a
typical response. But
adjustments
are
not
instantaneous,
which
smoothly
functioning markets
would
predict. Strategic considerations are
paramount.
Even if
technological
change
is a
structural
requirement
for
capitalist
competition,

some firms find it
"rational"
not
to innovate, while others
make
do
with
selective investments. This
could
render
firms technological
laggards. Also governments are often forced to subsidize their failing national
industries, thus prolonging ageing industries for political reasons. Still others,
wishing
to
exploit
commercial
opportunities
or
developing
country
governments
wanting
to join
the
industrial
club, aggressively invest in
production
capacity, seeking
out

new, cheaper technologies. In this scenario
4
THE
RESTRUCTURI NG OF
THE
STEEL INDUSTRY
supply
and
d
emand
never
quit
e
match
as
innovations
and
firm
strat
egy
continuou
sly
introduce
disequilibrium,
making
r
estructuring
an on-going
activity. Industrial crisis
and

expansion is therefore
part
of the
sam
e process
of uneven
capitalist
d
evelopm
ent,
in
evitably
influenced by
th
e une ven
diffu sion of technology.
We
can
explain capacity shifts by (a) showing
how
strat
egic technology
choice in the larger institutional setting of the US set the American
industr
y
on a different technological traj ectory; (b)
how
late industrializing
stat
es, by

mobilizing capital
and
technology,
add
ed to global steelmaking capacity;
and
(c)
how
new entrepreneurs are reconfiguring the industry in new ways. In
each case technological
chang
e,
with
its
att
endant
responses by firms
and
gov
ernm
ents, shapes the
structur
e of the global industry.
It
is pos sible to
d
emonstrat
e the deep
conn
ection b

etw
een the US industry's response to an
industr
y crisis leading to a delay in inno
vation
and
rapid
expansion of
steelmaking capacity in late industrializing countries. The industry-wide crisis
could be syst
emic-structural
or c
yclical-
exac
erbat
ed by late industrializing
states' aggressive
approach
toward
tran
sforming their
national
economic
structures. We can also theoretically posit
that
competitive industrial expansion
is
not
inevitable.
Not

all
stat
es succeed in economic transformation. Those
stat
es
that
are institutionally
coh
er
ent
and
not
subject to political exegesis
can b
ett
er cope
with
new innovations for capitalist developm
ent
.
Oth
ers
merely muddle
through
even as they
add
to industrial capacity.Technological
traj ectories are
thu
s heavily influenced by institutional responses to change

and
the institutional capability for
harn
essing
that
change (Amsden 1989;
Lall1996)
.
The diffusion of technology is also conditioned by systemic factors.
Th
e
post-World War II high economic
growth
was conducive to innovation-led
economic
chang
e in the capitalist
countri
es
but
was particularly unhelpful
for d
eveloping
countri
es wi
shin
g to establish t
echnologicall
y
compl

ex
industries on their
own
terms.
With
weak
dom
estic dem
and,
limited capital,
infrastructural bottlenecks,
and
government regulations, developing countries
were
not
attractive sites for technology
transf
ers.
How
ever, systemic crisis
leading to slow-growing
industri
al d
emand
led several steel technology
suppliers to sell technology to developing countries. The
"boom
erang" effect
was inevitable: technology recipi
ent

s became future
comp
etitors. States
that
were
institutionall
y
coh
er
ent
and
aggr
essive
could
exploit syste mic
opportuniti
es such as a glut in the equipment m
ark
et to acquire
mod
ern
technologies.
Th
e diffusion of technology is conditioned by
both
growth
and
crisis in the capitalist system.
If
innovation is a structural requirement for capitalist

comp
etition it is
not
unreasonable to expect new technologies that lower costs
and
enhance quality.
The history of industrialization is replete
with
such examples.
Wh
ich new
technologies are developed
and
wh
y they develop introduce
furth
er elements
of strategic choice in an
oth
erwise highly abstractcapitalist system (see Ruigrok
5