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The Global Restructuring of the Steel Industry

VIEWS: 194 PAGES: 259

               THE STEEL INDUSTRY

Th e steel indu stry is one of m an y m aj or wo rl d ind ustries ex te nsively
restructured in th is era of globa lizatio n. The Global Restructurin g of the
Steel Indu stry ex plains how and why th e steel ind ustr y has shifted from
adva nced ca pita list countries to lat e ind ustria lizing countries.
    Dr awin g upon case studies of th e steel industr y in th e US, Japan , South
Korea, Brazil and India, Antho ny P.D'Costa exa mines the relationship between
industri al cha nge and institution al respon ses to techn ological diffusion. H e
reveals th at govern ments' and firm s' differin g respon ses to innovatio ns lead
to an uneven diffusion of techn ology and indu strial reorgan ization . M oreover,
when it becomes clear th at existing institutio na l arrangements no longer serve
th e industr y well, new arrangements are made which allow for inn ovative
beh a viour. O fte n th is h a s cr eated o p po r t uni ties for t echn ol o gic al
" leapfrogg ing" and th e emergence of new techn ologies in unexp ected places.
The steel industry has con sequ entl y kn own a new dynam ism and th e open-
ended nature of capitalist competiti on has been firml y und erscored .
    The Global R estru cturing of th e Steel Indu stry is a timely addi tio n to th e
literature of world indu stries and offers valuable insights into the new dynamics
of industria l capitalism in th e globa lized age.

Anthony P.D'Costa is Associat e Professor of Co mpa ra tive Internat ion al
Development at th e University of Washin gton , Tacom a, USA. H e has written
on ind ustria l restructuring in Asia, Lat in America and th e US and is currentl y
researching techn ology leapfr ogging in th e Ind ian software industr y.
            WORLD ECONOMY

                         1 STATES AND FIRMS
           Multinational enterprises in institu tional comp etition
                               Razeen Sally

                   AND SMA LL ECONOMIES
                        Th e Swedish case
     Thomas Andersson, Torbiorn Fredriksson and Roger Svensson

                  Catalysts for economic restructuring
            Edited by John H.D unning and Rajneesh Naru la

                Globalization and competitiveness
                        Rajneesh Naru la

                 Edited by Sue Birley and Ian Macm illan

                              An overview
               Edited by Dilip K.Ghosh and Edgar Ortiz

                         John H.D unning

          Edited by Roger van Haese! and Rajneesh Naru la

                                OF SERVICES
    Real estate advisory services in Japan , Euro pe and the United States
                               Terrence LaPier

                            IN THE EU
        The case of the Korean consumer electro nics ind ustr y
                          Sang Hyup Shin

                      Roger van H aese!

            Th e role of co-operat ion in the technology secto r
          Edited by Richard ].B raudo and Jeffrey G.Macintosh

            Innovation s, institu tion s and ind ustrial change
                           Anthony P. D 'Costa

                     TELECOMMUNI CATIONS
             Comparing Britain , the Net herlan ds and Fra nce
                           Willem Hulsink
Innovations, institutions and industrial change

            Anthony P.D-'Costa

            London and New York
                        First published 1999
                            by Routl edge
               11 N ew Fetter Lan e, Lond on EC4P 4EE

  Thi s edition published in the Taylor & Fra ncis e-Libra ry, 200 3.

          Simulta neous ly published in th e USA and Canada
                             by Routl edge
             29 West 35th Street, New York, N Y 10001

                      © 1999 Anth on y P.D'Costa

    All rights reserved. No part of thi s book may be reprinted or
       reproduced or utilised in any form or by any electro nic,
        mechanic al, or other mean s, now kno wn or hereafter
     invented, includin g photocop ying and recording, or in any
   informati on sto rage or retri eval system, witho ut permi ssion in
                      writing from the publi shers.

           British Library Cataloguing in Publication Data
A cata logue record for thi s book is available from th e British Libr ar y

        Library of Congress Cataloguing in Publi cation Data
                        D' Costa, Anth on y P., 195 7-
     Th e glo bal restructuring of th e steel industry: inn ovati on s,
       instituti on s, and indu stri al chan ge/Anth on y P.D'Costa.
                                 p.      cm.
            Incl udes bibliogra phical references and ind ex.
     1. Steel ind ustr y and tr ade. 2. Steel ind ustr y and tr ade-
                       Govern ment policy. 1. Titl e.
                           HD 9510.5.D38 1999
              338 .47669142---Dc21                  98- 276 03

              ISBN 0-20 3-42522-7 Master e-boo k ISBN

            ISBN 0-20 3-445 94-5 (Ado be eReader Forma t)
                ISBN 0-415 -14 827-8 (Print Edition)

  ~~~~                                                                      ~
  List of tables                                                            Xl
  Forew ord                                                               X lll
  A ckn owledgements                                                      X Vll

1 The restructuring of the steel industry                                    1
  Introdu ction 1
  Ex plaining indus trial restru cturing 2
  Outline of chapters 8

2 An institutional interpretation of steel industry
  restructuring: an analytical framework                                   11
  Introdu ction 11
  Th e restru cturing issue 12
  Techno logy and restructuring: an analytical fram ew ork    21
  Conclusion 28

3 Technological change and crisis in the American steel
  industry                                                                  30
  Introdu ction 30
  Strategic ado pt ion of new inn ovation s 37
  Th e crisis com po unded 43
  Crisis-inspired restructuring: disinvestme nt and institutional change 48
  Conclusion 55

4 Technological change and rapid industrial development
  in Japan and South Korea                                                 57
  Introdu ction 5 7
  State-led late indu strializati on 5 8
  Institutional response to new inn ovations 67


  Excess capacity, maturity, and Japan ese restructuring     72
  Conclusion 80

5 Technological change and institutional challenges in
  Brazil, India, and Korea                                                 82
  Introduction 82
  State-led capitalist industrialization 83
  Overcoming 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
  Th e emergence of minimills 141
  Technological breakthroughs in the non-integrated steelm aking
    pro cess 148
  Th e diffusion of new technologies and restructuring 155
  Conclusion: new technologies and industrial restructuring 165

8 Interpreting technological change and industrial
  restructuring                                                           169
  Introduction 169
  Restructuring and capitalist industrialization 170
  Institutional chang e and restructuring 173
  Technology, strategy, and the int ernational division of labor    177
  Conclusion 182

  Notes                                                                   184
  Appendix: institutions visited and/or contacted for data collection     200
  Bibliography                                                            202
  ~~                                                                      2ll


2.1   A virtuous cycle of technological cha nge and ind ustria l
      expansion                                                           26
2.2   An ana lytica l framework for industria l restructuring             27
3.1   Diffusion of Bessemer and ope n hearth furnaces (OH F) in
      th e US                                                              32
3.2   Unit opera tio ns in steelma king sequence: integra te d blast
      furnace-b asic oxyge n furnace-continuou s castin g and
      minimill (electric arc furnace)                                      34
3.3   Adop tion of basic oxygen furnace (BO F) and continuou s
      casting (CC) in th e US and Jap an                                  41
3.4   Lar ge-sized blast furn aces in th e wo rld                         42
3.5   Rising steel impo rts in th e US                                    43
3.6   Relat ive profitabil ity of th e US steel industr y (% of equity)   44
3.7   Financing investm ent in th e US steel industr y                    45
3.8   Excess capacit y in th e US steel industr y                         49
3.9   ARMCO's plant imb alanc es and rounding-out process                 50
4.1   Korean investm ent in th e steel industr y                          60
4.2   Incr easing size of blast furnaces (BFs) and basic oxyge n
      furnaces (BO Fs) in Jap an                                           70
4.3   Co nvergence of auto ma tio n in Jap an an d Korea                   72
4.4   Declining cap acit y utilizati on in th e mature econo mies,
      1973-90                                                              73
4.5   Restructuring and pr ofit ability of th e Japan ese steel
      industr y                                                            76
5.1   Output expans ion by th e Kor ean steel industr y                    89
5.2   Brazilian investme nt in th e steel industr y, 1972-96               94
5.3   Ca pa city util ization in Indi a                                   110
5.4   PO SCO 's learning cur ves for blast furnace (BF) opera tion        113
6.1   Th e cha nging division of lab or on th e US west coast             131
6.2   Cha nging pattern of Jap an ese ex ports                            133
7.1   Rising tr end in Jap an 's electric arc furn ace (EAF) size         145
7.2   US scra p supply, 1960-84                                           147
                            LIST OF FIGU RES

7.3   Ispat 's expa nding steel business                   161
7.4   Planned new plants and new techn ologies in Ind ia   163
8.1   Demand and supp ly of steel scra p in Korea          179


1.1   Cha nging structure of global steel producti on (% of tot al )        3
3.1   M ajor steel product mar ket s by type of opera tio n and
      end use                                                             35
3.2   M ajor innovat ion s in th e steel indus try                        36
3.3   Investm ent cost for mod ernizati on and gree nfields               47
4.1   Post-war development of th e Jap an ese steel industry              62
4.2   Financing PO SCO's mill s                                           67
4.3   Co ntinuo us casting rat io                                          71
4.4   Th e rat ion alizati on pr ogram of Jap an ese steel firm s
      (1987-96)                                                            78
5.1   Integrat ed steel cap acit y expansio n in Brazil (million ton s)    89
5.2   Investm ent and ex pansio n of India's integra te d public and
      priva te secto r steel industr y                                    90
5.3   Co mpa rison of int egrat ed greenfiel ds in Brazil, India,
      an d Korea                                                           99
5.4   Empl oyment in th e steel ind ustry                                 102
5.5   Diffu sion of mod ern technology: basic oxygen furn ace (BO F)
      an d continuou s ca sting (%)                                       111
6.1   Th e cha nging int ern ati on al division of lab or : US imp ort
      stru cture (%)                                                      122
6.2   Average cost per ton of pro duction (US$)                           126
6.3   Princip al for eign joint ventures in th e US integra te d steel
      segment                                                             130
6.4   PO SCO 's overseas ventures                                         135
7.1   Th e diffusion of electric arc furnace (EAF) technology             142
7.2   Average size of min imill plants in th e US and Jap an              144
7.3   Recent technological br eakthroughs in alternative
      steelma king pr ocesses                                             149
7.4   Greenfield investm ent costs: minimill and integrat ed in
      th e US                                                             152
7.5   Foreign player s in US minimills                                    154
7.6   Diffusion of new minimill technology in th e US                     157
                             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


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
    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


en d of World War II. However, a captive and enorm ous domestic market
and the oligopolistic structure of the industry produced a complacent and
lethargic attitude towards technical ch ange. Four decades ago, W.E.G .Salt er
ex plode d the myth that in ad vanced capitalist countries most firms use
best-practice technology most of th e time. Leads and lags in th e diffu sion
of technology, industry structure and various kinds of protection or subsidies
en joye d by the firms can gen erate a large spread of technolo gy and
productivity. But the US steel industry set a record of delayed adoption of
best-practice technology by setting up mo st of th e 44 million tons of new
capacity in the shap e of op en hearth furnaces wh en th e ba sic ox ygen furnace
(BOF) had alr eady proved it self as the best-practice technology for steel
smelt ing. Th e en ormous amount of US aid to the allies and som e developing
countries, often em bodied in high-cost products tied to aid, contributed to
this development, along with the risk- avers e divisions of an oligopolistic
industry cocooned in a protect ed domestic market.
    However, as soon as th e Japanese and th e German steel industries set up
enough capacity with BOF and continuous casting (C C) technologies, th e US
industry lost its dominance in the exp ort market and found its home turf
threatened by imports of for eign steel and enginee ring products. Th e lat er
history of th e US steel industry is on e of painful and halting adjustment and
downsizing, with various kinds of govern ment help summoned to prop up an
ailing giant.
    Although this story seems to be but a repetition, on a lar ger scale, of what
happened to many segments of British industry in an earlier era with th e th en
newly industrialized countries emerging to overtake th e pioneer, th e Japanese
and th e Korean challenge to the US and many segments of th e European steel
industry seems to h ave imparted a new quality of aggr essiven ess to the
competitive race. This new quality inh eres in th e fact that, whil e parts of
British, American or even continent al European export demand for steel
originated in colonial or dependent economies with som e cu shion for high er
prices or lower quality, th e Japanese and th e Kor ean exports have depended
almost entirely on competitiveness in pric e, quality, customer suitability, and
delivery tim e.
    D' Costa provides a fascin ating and con vincing account of wh y, out of th e
three countries-Brazil, India, and South Kor ea-which can be said to ha ve
mounted a state-led pro gram of development of their respective steel industries
in th e po st-war period (although in th e case of Brazil, thi s effort actually
began in th e 1930s), onl y Kor ea ha s been abl e to develop an industry wh ich
is competitive by global standa rds. Thi s contrast in th e actual outcome of th e
state-led development dri ve, of course, applies more or less to th e entire
spectru m of indu stries and to th e economy in general and ha s deep social and
political roots; but it also deri ves partly from differenc es in geopolit ical
    Th e government s of those states which man aged successfully to promote

                                       XI V

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


possible. They also quickly invested large amounts in setting up BOFs. In
India, even when the Germans set up the Rourkela plant with 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 entry of 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 intimately connected. 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


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 adopting a "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


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
    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


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!

                            ACKN OWL ED GEMENTS

    For every author th ere is always, I hope, a solid sounding board. In my
case, Janett e Rawlings has been more than that. She not onl y put up with
reading severa l vers ions of a rather dr y, perc entage-driven manuscript-
meticulously editing th e document line by line-but also provided invaluable
suggestions to improve th e analysis by detecting inconsistencies and other
shortcomings th at typically get conveniently hidden from th e author. M y
hat' s off to her for her patient efforts to improve th e manu script. M y parent s
deserve a special th ank you for th eir un stinting support in my academic
endeavors, even if at tim es it wa s not always clear to th em wh ere it would all
lead. I am grateful for th eir patience an d under standing. In th e end non e of
th ese indi vidu als or institutions ar e responsible for an y of th e err ors and
omi ssion s.
                                                                            A.P.D .

               STEEL INDUSTRY

Pitt sburgh in th e nineteenth and early twenti eth centu ries was th e epicenter
of globa l steel pr oduct ion . It hou sed US Steel, th e wo rld's first billion dollar
company. Seventy-five years later, th e American steel industr y was in a deep
crisis. Nearly 46 million ton s (rnt) of steel capacity during the 1978-88 period
was ph ased out, a third of which was in th e Pittsburgh region alone. In 1988
Carnegie M ellon Un iversity in Pitt sburgh received a mi llion dollar s from th e
Poh an g Iron and Steel Co mpany (pa sco )- the sta te-ow ned South Korean
firm-for metallurgical research. Technical sta ff from newly formed nat ion s
in th e 1950 s and 1960s were sent to Ca rnegie Mellon for tr aining in th e art
and science of steelma king. At th e time Korea was too poor and politically
disorgani zed to even contemplat e con structing a steel mill. Tod ay pa sco is
th e wo rld's second largest steel firm with an annual revenu e of over $10
billion . Th us th e endowment to Ca rnegie M ellon was more th an a gift; it was
a mark of commercial clout and ind ustria l success. Its financi al and techn ical
collab or ati on with US Steel was ano ther sign of shifting industri al power.
Th e industry had com e full circle with US Steel's preeminent globa l position
now reduc ed to number six.
    In the 1980s other changes were in the offing. Kenn eth Iverson of NUCOR,
a steel industr y maverick, challenged US Steel and other lar ge American
producers on th eir ow n turf by risking new technologies to produce sma ller
vo lumes of low value steel efficiently. Th e diffu sion of a new genera tion of
minimills in th e US and elsewhere in jected a new lease of life for th e industr y
as a who le and reduc ed entry barriers for capita l-scarce econo mies. H alfway
aro und th e wo rld, th e M itt al br others from Ind ia were bu sy expanding th eir
steel bu siness, not only in Indi a, but in overseas markets as well. Sta rting
with sma ll plants in Ind on esia and Ind ia, since th e 1980s th e M itt al fam ily
has been investin g in new technologies and acquiring steel mills in M exico,
Ca na da, Ir eland , Ge rma ny, and Kazakh st an. Entrepren eur ial ism and
innova tions in the steel indu stry are alive and well in new and often unexpected


    The 1980s also marked the en d of the tradition of the state-owned
steel industry. The aggressive privatization of Brazil's integrated steel
industry initiated by Presid ent Collor de Mello in the late 1980s transferred
nearly 80 perc ent of Brazilian steel output to private ent it ies. In 1991,
India for th e first tim e in th e post-independenc e period is privatizing public
sector firms, including steel, and has op en ed the integrated steel sector to
individual entrepreneurs. With fre er play of market forces, the gigantic,
oligopolistic industry, once a favorit e sector of governments for
transforming economies, is now under competitive pr essure. No longer
insulated, the heavy industry is finding ways to become leaner. Foreign
partners ar e welcome in sh ar ing proj ects and on the whole the industry
has become more trans nationalized.
    Th e purpose of this study is to explain three main developments in th e
industry that have led to th e continuous restructuring of steel production
capacity (see D'Costa 1995a). This is essentially a process of reorganizing
and adjusting capacity under changing conditions. The first development is a
spatial on e. Global steel production is no long er confined to th e US and
Western Europe (see Tabl e 1.1). Lat e industrializers such as Japan, Brazil,
and Korea have broken the monopoly of US dominance. More importantly
th ere has been an absolute declin e in steelmaking capacity in the US. This
calls for an examination of ex pansion and contraction of industrial capacity
in th e world economy as exemplified by th e ascent of Korea's pasco and
th e declin e of us Steel.
    The second development is th e disequilibrium set in motion by new
innovations. N ew investment and market opportunities have been op ened
up, challenging the traditional large-scale, integrated producers with
alt ernative, smaller, and more flexible minimills. The US steel industry has
been reju venated and entry barriers for entre prene urs elsewhere have been
low ered. Consequently, further reor ganization of steelm aking capacity must
be acknowledged. The third new development is institutional change. No
long er ar e governments as deepl y engaged in th e industry as th ey have been
since the post-war period (see Tabl e 1.1 ). Increasingl y entre prene urs and th e
pri vate corporate sector around th e world ar e entering th e industry and
internationalizing it in an unprecedented wa y.

                     Explaining industrial restructuring
A popular explanation for industrial restructuring is changing comparative
advantage (Lawrence 1984; Balassa 1985). As wages increase, costs of producing
steel increase in the US, making low-wage developing ar eas formidable
competitors. Thus shifts in industrial production are driven by changing prices.
A more institutionally driven perspective also ex plain s the changing
international division of labor on th e ba sis of low wages (Froebel et at. 1981).
Multinational capital in search of low wages reorganizes its manufacturing

Table 1.1 Changing struc ture of global steel pro duction (% of tot al)

                            1960            1970            1980            1990           1996            Topfirms and their world rankingsfor 1976-

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

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
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 rica n Iron and Steel Institute, Annu al Statisti cal Repo rt, various yea rs; Intern ation al Ir on a nd Steel Institute, Int ernat ional Iron
an d Steel Statistics, var iou s yea rs
No tes
a    = negligible
b    excludes former East Euro pean bloc, Soviet Union, China, and N orth Kor ea, tot al output may vary du e to different classification of count ries in
     different pub licati on s
mt =million metric tons
NA = not ap plica ble

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's global
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


supply and demand never quite match as innovations and firm strategy
continuously introduce disequilibrium, making restructuring an on-going
activity. Industrial cri sis and expansion is th er efore part of th e same process
of un even capitalist development, inevitably influenced by the une ven
diffu sion of technology.
    We can explain capacity shifts by (a) show ing how strategic technology
choice in th e larger institutional setting of th e US set th e American industry
on a different technological traj ectory; (b) how lat e industrializing states, by
mobilizing capital and technology, added to global steelmaking capacity; and
(c) how new entre preneur s ar e reconfiguring th e industry in new w ays. In
each case technological change, with its attendant responses by firms and
governments, shapes th e structure of the global industry. It is pos sible to
demonstrate th e deep connection between th e US industry's response to an
industry crisis leading to a delay in innovation and rapid expans ion of
steelmaking capacity in late industrializing countries. Th e industry-wid e crisis
could be systemic-structural or cyclical-exac erbated by late industrializing
states' aggr essive approach toward transforming th eir national economic
structures. We can also theoretically posit that competitive industrial expansion
is not inevitable. Not all states succeed in econ omic transformation. Those
states that ar e institutionally coherent and not subject to political exegesis
can better cop e with new innovations for capitalist development. Others
merely muddle through even as th ey add to industrial capacity. Technological
traj ectories ar e thus heavily influ enced by institutional responses to ch ang e
and the institutional capability for harnessing that change (Amsd en 1989;
Lall1996) .
    Th e diffusion of technology is also conditioned by systemic factors. The
post-World War II high econ omic growth wa s conducive to innovation-led
economic change in the capitalist countries but was particularly unhelpful
for developing countries wi shing to esta blish technologically complex
industries on th eir own terms. With weak domestic dem and, limited capital,
infra structural bottlenecks, and government regulations, developing countries
were not attractive sites for technology transfers. However, systemic crisis
leading to slow-grow ing industrial demand led sever al steel technology
suppliers to sell technology to developing countries. Th e "boomerang" effect
wa s inevitable: technology recipients became future competitors. States that
w er e institutionall y coher ent and aggressive could ex plo it sys te m ic
opportunities such as a glut in th e equipment market to acquire modern
technologies. The diffusion of technology is conditioned by both growth and
crisis in th e capitalist system .
   If innovation is a structural requirement for capitalist competition it is not
unr easonable to expect new technologies th at lower costs and enhance quality.
The history of industrialization is replete with such exam ples. Which new
technologies ar e develop ed and why th ey develop introduce further elements
of strategic choice in an otherwise highly abstract capitalist system (see Ruigrok


and van Tulder 1995). It is not the systemic nature of innovative behavior
that is of interest here, but rather the effects of innovations on the users of
previous technology. New technologies need not displace existing production;
that is determined by the institutionally driven diffusion process. Rather, it is
the creative tension between the old and new technologies that sets the
restructuring process in motion in new directions. There is also the possibility
of technology leapfrogging on the part of latecomers to the industry. Whether
leapfrogging actually takes place is dependent on the institutional capacity
to absorb new technologies and the national economic and policy environment
in which they are adopted. Thus innovation and uneven development are
inextricably linked, making the restructuring of the industry significantly open-
    The capitalist system is global but it takes on particular national features.
Thus Japanese capitalism is different from its US or Korean counterparts,
even if they all share the institution of private property. What differentiates
them is the policy environment and the ways by which national capitalism is
regulated. Self-regulation has been common in American industry, whereas
state regulation of private capital has been typical in most late industrializing
countries. However, as capitalism itself changes, institutional arrangements
governing capitalist regulation also must change (Aglietta 1979; Gordon et
at. 1985). Restructuring thus can be interpreted as part of a larger institutional
shake-up, from the breakdown in the Keynesian consensus to coping with
mass production systems in volatile markets (Piore and Sabel 1984; Morales
1994). It therefore should come as no surprise when the state intervenes in an
attempt to resolve the industrial crisis. Conversely, persistent losses by the
state sector could also prompt the privatization of production units and the
emergence of entrepreneurs bent on commercial profits. It is this understanding
of institutions that allows us to differentiate an otherwise unified economic
and industrial system undergoing change. Here too there is strategic choice,
inducing gradual institutional changes to stabilize the national version of the
capitalist system. There is also an open-endedness as new institutional
arrangements shape the evolution of the industry.
    By contextualizing the restructuring process in the larger capitalist system
with technological change as driving industrial contraction and expansion,
we are able to move beyond the logic of the market to explain the
reorganization of production capacity in the world economy. This is not to
reject the comparative advantage argument or dismiss the importance of prices
in industrial change. Rather, the market mechanism with its attendant shifts
in economic variables, when analyzed in conjunction with softer aspects of
institutionally driven technological change, provides a much richer
understanding of industrial reorganization in general and steel restructuring
in particular.


                A note on methodology and data sources
I examine the restructuring process by analyzing technological change in
the steel industry in general and in the US, Japan, Korea, Brazil, and India
in particular. Rather than interpreting industrial restructuring as simply a
consequence of changing prices, I see it as a ceaseless process of capitalist
expansion in which strategies and institutions interact to diffuse technologies
unevenly. I develop an interdisciplinary analytical framework of restructuring
by combining the macro dimensions of capitalist development with the
institutional aspects of late industrialization, focusing on technological
change and the on-going evolution of the industry. More importantly, I
allow the data to "speak" for themselves in developing this framework. By
tracking the historical conditions, subsequent development, and recent
trajectory of the industry in the five countries I am able to capture the
restructuring process spanning nearly half a century in a multitude of
institutional contexts.
    The choice of countries has been made to reflect both industry crisis,
successful industrial expansion, and cases in between. The US represents a
"hard" case of crisis. Japan and Korea are considered "hard" cases of
successful expansion, with Japan replicating the American crisis on a smaller
scale. State intervention notwithstanding, Brazil and India, unlike Korea,
illustrate "soft" cases of industrial change. Institutional differences account
for the less robust industrial expansion. However, when more recent
innovations and their diffusion are examined, both the US and India display
considerable dynamism in introducing new innovations. Neither Japan nor
Brazil has been aggressive with new technologies, while Korea continues to
maintain its strategy of keeping abreast of most technological breakthroughs.
    The development of the steel industry as presented in this study is divided
into several discrete phases and country groups:

•   The US and Japan are seen as mature economies. However, they are
    separated by the timing of their industry crisis, with the US preceding the
    more recent Japanese difficulties by nearly a decade and a half.
    Technologically, Japan has transformed itself from a follower to leadership
•   The 1950s to the 1970s is considered to be the first phase of restructuring.
    Both the US and Japan are on an expansionary path in this phase, albeit
    on fundamentally different technological trajectories.
•   Japan and Korea are an integral part of an expansionary restructuring
    process, sharing in different ways a highly interventionist state. Korea's
    success in the steel industry shows few signs of crisis associated with
    industrial maturity.
•   Korea is also grouped with Brazil and India as a late industrializer, sharing
    again in varying degrees an activist state in industrial transformation.


    Their industrial performance is ranked in that order. More recently India
    has been more aggressive than Brazil with new technologies and has
    spawned internationally successful entrepreneurs.
•   In the second phase, from the 1960s to the 1980s, the three developing
    countries experience capacity expansion.
•   India and Brazil exhibit similar trajectories in industrial evolution, with
    the Brazilian industry far more transnationalized than India's.
•   With new innovations, continuing industrial adjustments, and integration
    of the global economy, the 1980s to the 1990s is seen as the third phase
    of industrial restructuring.

All five countries display a wide range of technology strategies, state policies
and institutional capacities, and diffusion of technologies.
   I have used both published data and information that I have collected over
the past decade in the various countries, mainly through company documents
and interviews with industry officials at various levels. Fieldwork was
conducted in India (four times), Brazil (once), Korea (twice), Japan (three
times), and the US (once). These data were collected to understand firm
strategy, national technological trajectories, and industry developments in
general under changing domestic and international conditions.

                             Outline of chapters
Chapter 2 develops an analytical framework for examining the restructuring
process of the capital-intensive steel industry. It begins by critically examining
the "logic of the market" explanations for industrial restructuring. It identifies
the omission of technological change as a serious flaw in explaining shifting
competitiveness. A number of perspectives are synthesized to develop a
framework that can account for technological change and uneven diffusion.
Restructuring, or the changing international division of labor, is a consequence
of strategic responses to innovation by both private firms and late
industrializing states.
   Chapter 3 presents the technological evolution of the US steel industry. It
covers the historical development of steel technology and its diffusion in the
US. The production process is described so as to identify technology as a
major determinant of competitiveness. The chapter demonstrates the slow
diffusion of modern technologies in the US, exposing US firms to competitive
pressures. For the US the crisis of overcapacity is treated in conjunction with
the constraints of cost of technology, declining productivity, and competition
from other producers. The results have been technological obsolescence,
mounting debts, and imbalances in plant and equipment.
   The fourth chapter introduces the rapid expansion of the steel industries
in Japan and Korea. The two countries are paired to examine the "fast-
second" approach at work. The historical background of technological


capability is also examined. The chapter shows that competitiveness can be
changed by waves of investment in modern technologies. Learning-by-doing
adds further to technological capability. The waves of investment mobilized
by the state adds to the global capacity. Japan, like the US, is confronted
with the challenges of excess capacity and the need to restructure. This
chapter shows that systemic crisis is possible under different institutional
   Chapter 5 brings in the three late industrializing countries to discuss
restructuring, specifically the role of the state. Only Korea is shown to possess
the institutional capacity to mobilize investment funds and introduce modern
technologies. Though Brazil and India have been able to overcome the initial
barriers to technology and expand capacity their industries have been fraught
with difficulties. For example, construction delays, cost overruns, mounting
debts, faulty technologies, and poor project planning have been common in
both the Brazilian and the Indian steel industries. Technology diffusion has
been slow. In these two countries institutional arrangements, such as industrial
relations, were not conducive to high productivity and competitiveness, unlike
the Korean case. This chapter demonstrates that state intervention does not
guarantee industrial success; rather, the quality of that intervention is critical
in maintaining technological capability.
   After examining the evolution of steel technologies in the five countries,
Chapter 6 charts the changing composition of US imports to indicate how
they have shaped the international division of labor. As some countries, such
as Japan, moved ahead technologically, US firms have been unable to compete
with foreign exporters in certain product and regional markets. To rejuvenate
the industry and meet shortages of certain steel products in the US, new
institutional arrangements, such as joint ventures, between US and Japanese
firms became inevitable. Likewise, privatization in Brazil and the opening up
of the Indian industry to private capital have been introduced to strengthen
their respective industries. Institutional changes accompanying the
restructuring of the steel industry have pushed state-led capitalist regulation
to the background.
   The seventh chapter presents new innovations in the industry as the basis
for another round of restructuring. Modern minimills capable of producing
steel cheaply have opened up opportunities for entrepreneurs. The diffusion
of this technology is discussed in terms of comparative costs-both capital
and operating-and product markets. In keeping with the reduced role of the
state, these innovations have also accompanied new institutional
arrangements, such as entrepreneurialism and flexible industrial relations.
With lower entry barriers several players have entered the fray, making the
industry even more competitive. The restructuring has taken on a new direction
as several smaller firms with new technologies challenge the established
industry with low cost output. This chapter confirms the centrality of
innovations in the open-ended capitalist industrial system.


   Rather than summarize the salient dynamics of the industry's evolution,
the last chapter brings up several interrelated issues at the systemic and
industry-specific levels . Based on the empirical materials presented in this
study, the final chapter raises some questions on the contemporary
relationship between capitalist industrialization and restructuring and
accompanying institutional changes. By focusing on possible innovations
and industry strategy it also presents some predictions on the direction of
further restructuring.

              AN INSTITUTIONAL
                     An analytical framework

The objective of this study is to explain the global reorganization of the steel
industry, away from advanced capitalist centers to newly emerging ones.
Rather than simply viewing this process as a consequence of changing
economic forces, I show that the reorganization of production capacity is
related to technological change and its uneven diffusion. The diffusion process
is influenced by institutional responses to technological change. Here
institutions include mainly capitalist firms organizing production for
commercial gain and states pursuing capitalist industrialization. The analysis
of steel industry restructuring is driven by two key questions:

•   What is the larger context in which restructuring is taking place?
•   What are the mechanisms-economic, technological, and institutional-
    by which the industry is being organized at the global and national

This chapter presents "restructuring" as an organizing concept to analyze
capitalist development in general and reorganization of industrial capacity in
particular. In this study, global restructuring refers to the process by which
steelmaking capacity is being spatially reorganized across nations (see Ballance
and Sinclair 1983; Fagan 1989). Restructuring also refers to the various ways
by which a national industry adjusts to the capitalist imperatives of
competition, profitability, market control, and national development (D'Costa
1989). More specifically, restructuring is viewed as a complex process by
which the steel industry is evolving as a result of technological developments,
corporate strategy, and government policies. With innovations and the
diffusion of technology at the core of capitalist industrialization, restructuring
of the steel industry globally can be conceptualized in terms of different
national technological trajectories. By juxtaposing the factors that lead


innovating countries like th e US to fall behind technologically with th e
mechanisms by which late industrializing countries acquire technologies we
can est a blish th e un even diffusion of technology and the process of
    I develop an analytical framework by first outlining th e standard
economic explanations ad vanced for explaining industrial restructuring. In
addressing th ese issues I bri efly review th e "logic of th e market " ar gument,
consider ed integr al to the dominant paradigm for ex plain ing recent
industrial chang e. I show that th e logic of th e market, though per sua sive,
do es not ad equately capture some of the dynamics of technological change
and industrial restructuring. Consistent with th e empirical materials at th e
in d us t ry level, I proceed to sy n t hes ize eco n o m ic r eason in g with
in stitutional interpretations of t echnolo gical change and industrial
development in both ad vanced capitalist countries and lat e industrializing
countries to provide a multilayered understanding of th e restructuring
process.' Th e last section develops an analytical framework for explaining
global restructuring and industry-specific dynamics in th e five countries
under in vestigation.

                            The restructuring issue
The restructuring of th e industr y can be seen as th e contraction of industri al
cap acit y in th e ad vanc ed capitalist countries, such as th e US and Western
Europe, and expansion in lat e industrializing countries, such as Jap an and
Brazil. By addressing wh y in some countries capacity falls, whil e in others it
rises, th e restructuring process can be viewed as part of th e larger process of
uneven (capitalist) development in which technological change pla ys a large
part (Cyph er 19 79; Markusen 19 79; MandIe 1980; Warren 1982; Browett
1985; Hamilton 1986; Bryan 198 7; Abramovitz 1989). Historically, indu stri al
chang e, th e materialist transformation of society, has been a cons equ ence of
th e expa nsion of th e capitalist mode of production (Bagchi 1984a). Th e
unceasing pur suit of profit-making through production and subsequent market
excha nge is th e proc ess of capital accumulation by which th e original value
of invested capital is globally reproduced and ex panded. Successful capital
accumulation proc eeds either through low wages and long hours of work or
by introducing new innovations that increase labor productivity.' However,
thi s self-expansion of capital is subject to con straints, such as labor resistance
and competition among capitalists, resulting in varying rat es of industri al
change (Baumol et at. 1994:12 ) and th e un even spread of industri alization
over space and tim e (Boyer 1996:31 ).3Th e globa l reorganization of th e steel
industry can be located in the larger accumulation process in which
technolo gical change pla ys a significant rol e.


                          The logic of the market
The dominant paradigm of changing comparative advantage purports to
explain global industrial shifts. Rising costs (or changing relative prices),
resulting from market forces, are said to cause industrial decline in the US
and Western Europe, and more recently Japan. Similarly, "right"
marketoriented policies, "correct" prices for labor and capital, and "realistic"
exchange rates are said to be behind East Asia's industrial expansion (Balassa
1981a, 1981b, 1985; Bhagwati 1985). With free trade, changing factor prices
(mainly high wages) is seen as driving the industry away from advanced
capitalist countries (Anderson and Kreinin 1981). In this mode of reasoning,
industrial restructuring is natural and inevitable, with firms using least-cost
combinations of factors of production, costlessly substituting them when prices
change, and maximizing output. With shifting costs, firms are expected to
deploy their capital in other profitable activities, leaving the production of
steel to more cost-efficient producers, such as those in the newly emerging
markets of Korea and Brazil.
   Another variation on the comparative advantage theme is advanced from
the demand side. Developed capitalist countries are adjusting industrial
capacity downward as a response to a decline in demand, whereas rising
demand in late industrializing countries is prompting additions in capacity.
The decline in demand in mature economies is due to shifts in the structure of
the economy (Barnett and Schorsch 1983; Lawrence 1984; UN Economic
Commission for Europe 1984). Heavy industry is less important as "steel
intensity" (the ratio of apparent steel consumption to GDP) has already
reached high levels. Technological change substituting steel with lighter
products has also compounded the declining trend in steel demand. Economic
maturity has also meant excess capacity, that is, production capability
exceeding consumption requirements. Accordingly, restructuring incorporating
the downward adjustment of production capacity, in line with demand, is a
natural response to changing economic circumstances.
   The economically driven argument, whether from the supply or the demand
side, is valid. Changing comparative costs and demand shifts are bound to
have a bearing on the pattern and magnitude of production. However, there
are several deficiencies in this mode of reasoning. First, we cannot assume
that the market mechanism, operating through the system of price signals,
will necessarily adjust supply capacity even if changing economic conditions
dictate such a step (see Evans and Alizadeh 1984; Kaplinsky (ed.) 1984;
Edwards 1985; Colclough and Manor (eds) 1991). Firms can deploy excess
capacity as a strategy to deter entry of rivals or to flood the market to drive
out competitors (Baden-Fuller 1990:5). Second, given the static nature of the
comparative advantage argument, it is impossible to evaluate the longterm
effects of an investment (Schmitz 1984:6-7; Chang 1993:134-7; Moreira
1995). The dynamic efficiencies and externalities that result from lumpy


investments are difficult to predict. Thus an investment may appear to be
unjustified at a point in time when there is comparative disadvantage.
    Third, there are political reasons why the dictates of comparative advantage
are difficult to follow (see Barry Jones 1986; Jones 1986; Meny and Wright
1987; Caporaso and Levine 1992). Institutional impediments, such as the
reluctance of national governments to layoff politically mobilized factory
workers (Daems 1990) is one example. Fourth, from the demand side,
economic maturity implies declining consumption of steel. This view, however,
overstates the trend since it does not capture the changing composition of
direct imports of steel nor does it account for consumption of imported steel
embodied products, such as autos and consumer appliances (Locker! Abrecht
Associates Inc. 1985). Fifth, and most importantly, the logic of the market
argument assumes away innovations. Consequently, the creation of
comparative advantage by strategic investments in technology is not captured
by the freely functioning market system.
    Even if well functioning markets exist, late industrializing countries cannot
be assumed to adjust passively to shifting costs (see Hobday 1995). Steel
production is capital-intensive, with significant technologies embodied in
capital equipment. How late industrializing countries mobilize resources and
acquire technology is not explained. Similarly, why firms in industrialized
countries would suddenly change from being dominant players to inefficient
ones is only explained in terms of changing prices. Tyson and Zysman
(1983:24), critiquing the market-based approach, conclude that government
policies shape national comparative advantage. Thus the argument is not
whether costs change but rather why and how they change. Competitiveness
is not driven by changing prices but by technological change (Dosi and Soete
1991; Hart 1992). If policies influence technological outcomes then there is a
strategic element to be considered. This follows Marx's as well as Schumpeter's
understanding of capitalist dynamics, where changing the means of production
is the basis for reproducing the capitalist system as a whole, and individual
capitalists in order to compete deploy, innovations in anticipation of monopoly
rents (Schumpeter 1975; Cooper 1993).
    To understand the restructuring process it is therefore imperative to center
our analysis on changing innovations and their diffusion as the basis for
competitiveness. Given the serious omission of technological change, except
in some abstract optimizing behavior of profit maximization or cost
minimization, market logic understates the strategic nature of technology in
altering competitiveness (Rosenberg 1976:61-6; Nelson and Winter 1982).4
The logic also eschews state intervention since it is tantamount to price
distortion, ignoring the possibility that prices can be deliberately manipulated
to obtain predetermined outcomes. In fact, one important facet of the global
restructuring process has been precisely state involvement in deliberately
creating steelmaking capacity even when the prevailing comparative advantage
dictated otherwise (see Malecki 1995).


    An alternative interpretation of restructuring implies that productionoriented
firms strategically invest in technology whil e most states try to manipulate
prices to foster national capital accumulation (Hamilton 1983, 1986; Limqueco
and McFarlane (eds) 1983; Fransman 1986a; Deyo (ed.) 1987). Whil e price
competition today is an important feature of the steel industry,few governments
have left the fate of the industry to market forces. An oligopolistic industry
structure, significant economies of scale, and various policy-induced entry
barriers ha ve made price competition a consequ ence of past strategic investment
in technology.' From an industrial development point of view, th e advantages
emerge not from low wages alone, as predict ed by th e comparative advantage
argument, but from the positive extern alities associ ated with technology (Enos
1991; Arthur 1994). As an intermediate input, th e steel industry, with its dense
intersectorallinkages (a fa Hirschman), has been the perfect industry for strategic
investment by late industrializing countries, thus altering the global distribution
of steelmaking capacity. Th eor etically, restructuring is therefore a result of a
conscious investment and innovation strategy and not just a matter of adjusting
passively to market forc es.
    By addr essing who invests , in which t echnology, why, and how
investment funds ar e mobilized we will obtain not onl y an institutional
understanding of technological change and its diffusion but also the
sociopolitical context in which industrial investm ent takes plac e. Generally,
developing countries because of th eir economic backwardness ar e immune
from the "contagion " effect of technology transfer (Baumol 1994:73),
impl ying a significant institutional effort to secure modern technologies.
Technological ch ang e is integr al to capitalist competition but it ma y not be
profitable for all firms at all tim es to adopt new technologies. Th e strategic
decision not to innovate could lead to competitive problems." In th e same
vein, to escape from econ om ic backwardness, the proj ect of industrial
tran sformation calls for stra tegic investm ent by th e state (Ger schenkron
1962). However, since late industrializing countries ar e borrowers of know-
how, access to for eign technologies and th e institutional capability to acquire
them becomes an important link to the ad vanced capitalist countries
(Am sd en 1989 ).7 Al so, a s th e t echnolo gy ga p widen s the n eed for
government int ervention in late industrializing countries increases (Hikins
and Amsden 1994). However, given individual firm strategies and different
state capabilities in orchestrating economic transformation, we can expect
lags in the diffu sion of modern technologies. The resulting un ev en
development and pos sible productivity converg enc e in certain industrial
sect ors between forerunner s and latecomer s throu gh learning induces
capitalist competition sever e en ough to w arrant the reorganization of
national production. Technological breakthroughs could further alt er th e
str ucture of the industry. Restructuring is therefore industrial change
resulting from th e different national technological tr ajectories as well as
from th eir interaction in th e glob al economy (see Shin 1996).


              Technological change and industrial strategy
The structural requirement of a competitive capitalist system is technological
change. " With private property relations integral to the capitalist system,
innovations ensure monopoly appropriation of economic benefits (Kay
1975:155-6). Brenner captures this dynamic rather well when he writes:

    [it is] only where capitalist property relations prevail that all the
    economic actors have no choice but to adopt as their rule for
    reproduction the putting on the market of their product (whatever it
    is) at the competitive, i.e., lowest price. It is only in such an economy
    that all economic actions are perpetually motivated to cut costs.
                                   (Brenner 1986:34, emphasis in original)"

However, with oligopolistic firms, characterized by imperfect markets,
economies of scale, and high investment costs, the firms may not be motivated
to innovate and cut costs. Instead competition could be regulated either by
joint actions of member firms, say by an informal cartel led by US Steel in the
US, or by the state, as in Japan. This kind of sector regulation is normal in
capitalist development when overproduction, arising from individual firms
maximizing their market shares, especially in an economic downturn, has to
be avoided to prevent a price collapse (Best 1990). The decentralized nature
of capitalist decision-making is inherently destabilizing, thus necessitating
sector regulation for industry stability. The tension is apparent: collective
effort in maintaining industry stability versus the individual firm's desire to
innovate and stay ahead of rivals.
   Whether a firm will adopt an innovation or not will depend on the perceived
costs and expected benefits of new technology. 10 A long-term outlook will be
more conducive to new technology adoption than short-term profit
expectations, especially when the gestation period for capital-intensive, heavy-
industry projects tends to be several years. The industry-wide effect of new
technology is the lowering of (relative) productivity under the old technology.
Increasing capital intensity means increasing investment costs and replacing
old technology with the new." This also implies that existing plant and
equipment must be devalued even when its useful economic life may not
have ended. In such a situation firms are "locked in" by historical events and
institutional inertia (Arthur 1994; Nelson and Wright 1994:133). This poses
an adoption dilemma for firms that have been dominant under the old
technology. 12
   If the profit outlook for the industry is grim, extrapolated from recent
experience and changing competitive conditions, firms will be reluctant to
make new investments by devaluing existing assets. The oligopolistic industry
structure ensuring significant collective control over the market is also likely
to discourage innovation. Instead, firms will try to prolong the use of old


technology. In trying to maintain its political legitimacy the state may be
compelled to prop up technologically inefficient capital through subsidies
and protectionist policies. It is therefore logical to expect the coexistence of
different vintages of technology in the industry and varied commercial
performance. This sets the stage for increased mobility of capital, either as
reinvestment in the same industry or investment in other industries and
economic sectors. An industry crisis is likely to encourage diversification of
   Industrial restructuring in the advanced capitalist countries has been an
institutional response to systemic and industry-specific crisis (Weeks
1981:215). The systemic crisis has been precipitated by technological change
(Boyer 1996:41,54). The innovation cycle has been shortened, technologies
are seamlessly transferred in different locations, and automation has increased
labor redundancy. As a result, existing institutions are unable to cope with
increasing market volatility. In capital-intensive, heavy industries, the
slowdown in investment was exacerbated as the post-war high growth era
came to an end (Aglietta 1979; Mandel 1980a: 31,1983; Gordon et at. 1985;
Boyer 1990). The internationalization of capital contributed further to the
investment crisis (Jenkins 1985; Bryan 1987:273). With other profitable sectors
around, steel firms have been slow to introduce expensive new innovations.
Instead, capital flight has been common, providing industrial capital with
the option of diversifying out of their main line of business into finance or
investing in low wage areas (Bluestone and Harrison 1982).13The exhaustion
of post-war institutional arrangements, such as Keynesian-type demand
management and state welfare programs, introduced an institutional crisis
and triggered a fundamental realignment of the economy (Gordon et at. 1985).
The crisis put a prolonged brake on expanding and reproducing capital,
represented by the falling rate of profit, technological obsolescence, plant
shutdowns, and slow growth in productivity (Bradbury 1987). The structural
transformation of the US economy from heavy industry to services,
accompanied by manufacturing investments abroad by US-based transnational
corporations, and the rise of new competition from East Asia marked the
beginning of a new capitalist epoch (Marshall 1987; Kotz 1990).

                    Long waves and industrialization
At the macro level investment behavior is also influenced by "long waves"
(Marshall 1987).14 The post-war period witnessed vigorous capital
accumulation leading to increased profits (Mandel 1983:108-46). The
economic upswing, however, was followed by a downswing, accompanied
by overcapacity in industry and declining profitability. Imbalances in
investments in consumer and capital goods sectors result in surplus capacity
(Mandel 1980b; Forrester 1981; Freeman (ed.) 1986). Surplus capacity is a
typical outcome of capitalist competition. When the climate for investment is


favorable, firms, in a herd-like manner, invest in fixed capital, resulting in
overcapacity." This behavior also leads to the cyclical nature of capitalist
economies. Even where investment is coordinated, whether by cartels or by
the state, technological change (with attendant rising minimum efficient scale)
can contribute to overcapacity. Specifically, overinvestment in fixed capital
in the upswing is accompanied by technological change. The ensuing
intercapitalist rivalry can reduce profit rates (Devine 1983). The profit squeeze
can also arise due to increased bargaining by labor (Glyn and Sutcliffe 1972).
Whatever the causes and duration of these swings, they are not limited to
anyone variable, nor is their periodicity fixed (Gordon et at. 1985:22-41;
Wolff and Resnick 1987:185-92; Rosenberg and Frischtak 1994). However,
it is important to recognize the massive restructuring built into the cyclical
swings of the capitalist system.I" Thus in a downturn we can expect
devaluation of existing capital and disinvestment in specific industrial
branches, often resulting in mergers, joint ventures, and diversification.
    At the industry level, economic downswings in capitalist centers could
also result in the transfer of standardized technologies to less developed areas.
Following the logic of the product cycle (Vernon 1966), Markusen (1985:27-
42) suggests a link between long waves and the profit cycle. If the generalized
profit crisis (downswing) coincides with mature markets (stagnant demand)
then standardized technologies (signaling loss of monopoly rents) could be
deployed in new markets where profit rates are higher (Robles 1994). The
spatial implication is apparent: under competitive pressure production capacity
is likely to be diffused, with original centers being abandoned (Markusen
1985:43-50). The global restructuring of labor-intensive industries such as
garments, footwear, and microelectronics (Froebel et al. 1981; Nash and
Fernandez-Kelly (eds) 1983) are typical examples of new production centers.'?
To maintain commercial viability, under duress firms from mature economies
transfer technology to late industrializing countries for "harvesting" profit
(Markusen 1985:35). Many latecomers to industrialization which meet the
preconditions for capital accumulation emerge as new markets and new centers
for production, displacing older industrial sites (see Nelson and Wright 1994).
Accordingly, industrial maturity almost always guarantees foreign competition
in the more standardized products and processes, as home demand experiences
a declining trend and higher profits are expected in new production centers.

       State-led capitalist development and technological change
To catch up with forerunners, the state strategy in late industrializing countries
has been to maintain a high rate of investment and to secure modern
technology, often pursued through debt-based financing (Soon 1994:128).
At the systemic level, maturing markets and profit crisis in advanced capitalist
economies theoretically make it easier for late industrializers to acquire
technologies. The state in these areas is able to exploit the windows of


opportunity for sponsoring capital accumulation, especially those that link
capital and intermediate goods sectors (Desai 1979:39-46; Marx 1981:565-
98; Lichtenstein 1983:91 ).18 At the early stages of industrial transformation
there is systematic state intervention for industrial upgrading (see Evans 1985).
The presence of a weak capitalist sector and an entrenched land-owning class
is not conducive to dynamic industrial change. Access to foreign technology
remains critical to industrial restructuring, with significant institutional
investments to ensure the flows of technology and mobilization of savings
for industrial investments (Jones and Sakong 1980; Sen 1983; Jones 1987;
Larrain 1989).1 9
    All states are assumed to intervene in one form or another, although they
differ in their style and effectiveness in bringing about structural
transformation (Evans 1995:10). Far from the crude Marxist conceptualization
of the state as the "instrument of the bourgeoisie," the role of contemporary
states is contested. The state's interest may deviate from the interests of capital
(Scokpol 1985), pursuing expansionary accumulation purely as part of
"national" interest (Miliband 1983; Sen 1984). The state may even compete
with private capital (Laux and Molot 1988).20 Its effectiveness will depend
on its relative autonomy from various social groups (Poulantzas 1973). East
Asian states are characterized as "developmental," possessing "a bureaucratic
elite capable of administering the [economic] system, and [insulating] its
bureaucrats from direct political influence so that they can function
technocratically" (Johnson 1987:142). The state in this instance acts as a
"surrogate entrepreneur," socializing risks for national private capital (Evans
1992: 14 7). States intervene more readily in late industrializing countries partly
because of their overdevelopment relative to society (Alavi 1972, 1975) and
partly because "the required level of capital for some activities can be reached
only by the state" (Corona 1986:211). The state supports capitalist expansion
through fiscal and economic policies, such as maintaining low energy prices,
subsidizing industry, and controlling wages. The state undertakes and
underwrites risky capital-intensive industries with long gestation periods.
These are also industries with significant backward and forward linkages
(Hirschman 1958; Gerschenkron 1962; Anglade and Fortin (eds) 1985; Evans
and Rueschemeyer 1985).
    State autonomy does not mean complete insulation from societal forces
(Evans 1995). If removed from the larger social context the autonomy of the
state could result in rent-seeking activities that are detrimental to expansionary
accumulation (see Calder 1993). Therefore, to be effective the state must
work with private capital. The state must be "internally coherent" and be
"externally connected" (Evans 1992:176). States that are pulled and pushed
by various social groups, as in India, do not have the capacity to maintain a
high investment rate (Bardhan 1984). Internal coherence translates into
administrative capability in designing and implementing national goals for
industrial transformation (Wade 1990; Haggard 1992)Y Most states are not


internally coherent because of constraints imposed by the larger national
institutional context. Multiple econ omic, political, and regional int erests can
undermine th e national decision-making process (see H erb ert-Copley 1994).
Therefore, to be effective the state must be responsive to private accumulation
needs, just as it must be sufficiently ind ependent to pursue th e project of
national industrial tr ansformation."
   It is clear that an industrial policy is necessar y to develop local technological
capability, capture extern alities, and attain export competitiveness (Chang
1993). What is not so clear is which industrialization strategy is preferable,
one based on trade, that is, export-oriente d industrialization (EOI), or on e
center ed on domestic production for th e home market, that is, import-
substitution industrialization (lSI). The transitory nature of policies make
such rigid ISI/EOI classifications problematic and em p ir ica lly often
unrecognizable (Weiss 1991 :32-4 1). What is incontrovertible is the evidence
of economic difficulties, especially in th e extern al sector, confronted by those
countries which ha ve pursued autarkic industrial polici es for a prolonged
period. This has littl e to do with th e rol e of th e state per se since a capable
state is still necessary to administer and execute outward-oriented development
polici es (see Manor 1991 :312). Th e decisive factor in successful industrial
policy has been a tr ad e policy that maintained a competitive exchange rate
(Sachs 1985) and stimulated ex ports without necessarily removing import
restrictions (Moreira 1995),23
   Even though "economic backwardness" prompts states to take an acti ve
interest in fost ering capital accumulation onl y a few states succeed. " States
that ar e institutionally weak or whose political legitimacy is in doubt ar e
unable to marshal th e necessary financial and infrastructural resources to
acquire modern technologies or induce local technological development . The
diffusion of for eign technology requires the development of absorptive capacity
on the part of the recipient. Past investment, technological en de avors,
accumulated ex pertise, an d a technology policy ar e all critical for acquiring
best practices and for th eir effective utili zation (Okimoto 1989:37; Chesnais
1991:144; Hatzichronoglou 1991:196-7,206-11 ). Thus econ omic
"backwardness" per se is not a precondition for successful intervention (Boyer
1996:39). Rather, institutional coh erenc e allows the state to set industrial
development priorities and execute them with imported technology. As Elster
(1986:63) notes, in a different, but relevant context:

    [S]uccessful learning and borrowing requires that the backward
    country be just a littl e behind, since otherwise th e prerequisites for
    making good use of th e advanced technology will be lacking.. .
    [Therefore] we [cannot] assum e that diffu sion of technology will
    take place when th e conditions for accepting and using it ar e abs ent.
    Th e "advantages of backwardness" sh ould be relegated to th eir
    proper place.


Closing th e technology gap impli es th e adoption of best-practice technologies
and supplementing th e technological effort with investment in infrastructural
services and the pro visioning of key intermediate industrial inputs and human
capital (Dahlman 1978; Enos 1982, 1991; Lall (ed.) 1984; Niosi and Faucher
1991:123). When industrial transformation is dep endent on large-scale
technologies, th e capacity of the state to acquire, manage, and op erate
technologies becomes crucial (Thomas 1982; Fransman 1985, 1986a) .
Effective utiliz ation of technology demands th e process of adapting a given
technology to local conditions, inducing "l earning-by-doing" (Dahlman and
Westphal 1982; Nelson and Winter 1982; Dahlman 1984; (Ros enb erg 1984;
Fransman 1986b; Lall1987:14) ,zs The implication of this is that th e mere
transfer of technology is not sufficient for technological mastery. Rather, th e
national institutional context and an innovation system gear ed toward building
technological capability ar e of paramount importance (Chudnovsky et al.
1983; Amsden 1985; Amsden and Kim 1986; Banuri (ed.) 1991; Niosi (ed.)
1991). If industries in lat e industrializing countries ar e able to deploy
innovations effectively and on a sustained ba sis th ey ar e likely to be on a
differ ent technological traj ectory from those industries that have consciously
decided against investment in new technologies. The introduction of modern
technologies by lat e industrializing countries can set th e global restructuring
of th e steel industry in motion.s"

         Technology and restructuring: an analytical framework
Generally, th e global reorganization of th e steel industry results from a set of
institutional responses to capitalist competition. Pri vate firms aim for
commercial viability whil e states seek to transform th eir economic structures
through capitalist industrialization. Technological change and its diffu sion
rem ains central to changing industrial competitiven ess. However, in the
context of system-wide crisis, investm ent in new technology is not necessarily
th e most strategic option for pri vate firms (Scheurman 1986; Tiffany 1988).
Besides, past investment decisions can "lock in" early entrants to the industry
with older technologies while lat e industrializing states can attempt to narrow
th e technological gap by acquiring for eign technologies and building local
technological capability. At th e national level, states enjoying "emb edd ed"
autonomy ar e better placed to mobilize in vestment funds, maintain an
inv estment momentum, and secure best-practice technologies. A high
investment rate at th e national level not onl y narrows th e productivity gap
but also contributes to excess cap acit y at th e global level (see Howell et al.
1988). Consequently, th e industry is glob ally reorganized whil e individu al
states and firm s pursue variou s stra tegies to launch new capacity and cop e
with excess capacity respectively.


                     A stylized version of restructuring
Capitalist imperatives of competitiveness and state-led promotion of
development in which core industries are targeted are two aspects of the
global restructuring process. Initial technological change can be both a curse
and an opportunity. New technology means writing off previous investment
but it also means lower operating costs and enhanced efficiencies. The actual
diffusion would be dictated by past investments and expected profits. The
spread of technology is also facilitated by late industrializing states pursuing
capitalist transformation. The ensuing change in competitiveness brings about
restructuring. As new innovations emerge the industry will be reordered again
III new ways.
    At the industry level the shift from one kind of technology to another
within the same industry is akin to a change in the "technoeconomic
paradigm" (Perez and Soete 1988). The technological frontier shifting from
open hearth furnace (OHF) technology in the post-war period to the basic
oxygen furnace (BOF) presented itself as a strategic problem for firms with
heavy investments in OHF, while for latecomers in general this was a unique
opportunity to leapfrog, given their lack of allegiance to any older technologies.
In the same vein the emergence of smaller, more flexible electric arc furnace
(EAF) technologies constituted another "paradigm" shift, offering new
opportunities for technology-led industrial restructuring.
    The strategy to adopt new innovations is dictated by cost-benefit
considerations, both short-and long-term. Institutional arrangements, such
as an oligopolistic industry structure and reliance on capital markets for
funding new projects, have a bearing on innovative behavior. Large firms
dominating the US market have had little incentive to adopt new technologies
(Crandall 1981; Adams and Mueller 1982; Oster 1982; Acs 1984; Kawahito
1984; Markusen 1985; Barnett and Crandall 1986; Hogan 1987; Adams
1990). For US firms, spiralling investment costs in a climate of low profitability
created an investment crisis. Foreign competition added to the pressure. Both
retained earnings and the capital market, typical sources of investment funds,
became inadequate sources of financing expansion and modernizing
production facilities. The demand for high dividends in the US generally
curtailed spending on manufacturing innovations (Lazonick 1994:184).
Restructuring in the US therefore was characterized by heightened capital
mobility away from the steel industry.
    Late industrializing states, such as Japan (Shinohara 1982; Vestal 1993),
Brazil (Baer 1969), and India (Johnson 1966; Liedholm 1972; Sidhu 1983)
began promoting their respective steel industries well before the crisis that
confronted the US and European sectors. However, the launching of the
Korean industry coincided with the crisis . The massive investment program
guided by the state and supported by the banking sector and aggressively
pursued by steel firms expanded steel capacity in Japan severalfold in a few


years. Unlik e in th e US, th e large size of firms and plants in Japan has been
conducive to rapid adoption of innovations with scale advantages. Surplus
capacity in Japan was inevitable and was lat er compounded by th e rapid
expansion by Brazil and South Kor ea (Enos and Park 1988; Amsd en 1989;
D'Costa 1994, 1996). However, unlike th e US, th e Japanese government, in
conc ert with th e industry, instituted "recession" cartels to maintain output
and pric e stability and to reorganize capacity gradually. Indi vidual firms cut
back capacity, consolidated existing production faciliti es with incr emental
innovations, and minimally diversified into non-steel op erations.
   All four late industrializing countries, engaged in national capitalist
development, overcame th e initial structural barriers of investment and
technology, making industrial polic y th e single most important instrument to
regulate the pattern and dir ection of industrial change. However, institutional
impedim ents in Brazil and India continued to inhibit investm ents necessary
to keep abr east of industry innovations. The status quo changed as institutional
arrangements were reordered and new innovations offered new opportunities
for capacity expansion. Th e privatization of th e industry in Brazil and th e
gradual opening up of th e Indian industry to private entreprene urs generated
a favorable investm ent climate, whil e new technologies requiring less capital
reduced en try barriers drastically for Japanese, Indian, and Korean
   Compounding the rapid global growth of steelmaking capacity has been
the accelerating economies of scale in modern steelmaking technologies. Lags
in diffusion and the resulting technological ob solescence reduc ed profits and
dampened future investm ents. As a result th e entire industry was pushed into
a vicious cycle of plant imbalances, plant closur es, cash flow problems, obsolete
excess capacity, high er operating costs, and rising corporate debt (Marklew
1995). Th e institutional response as part of capitalist rationality can be
expected to result in ad hoc investment programs and diversification into
non-steel sectors. Und er thes e circumstances, expansion of cap acity is rul ed
out, though individual plants could witness marginal increases by rationalizing
operations. Unable to cop e with structural difficulties, th e industry was
compelled to seek a collective solution from th e state. In som e fundamental
wa ys capitalist regulation in the US shifted from assertive self-regulation to
more state involvement (Hudson and Sadler 1989).
   In steel production, because of economies of scale and a wide product
range, rising productivity is generall y a function of technological change."
With technology embodied in capital equipment, th e size of equipment
becomes a defining paramet er of productivit y. As steel production is
investment-intensive (Crandall 1981), most developing countries cannot secure
modern technologies. In addition, firms prefer to transfer technology to
advanced capitalist countries becaus e of better infrastructural support (Baark
1991 :911). Finally, larg e-scale technologies require high capacity utilization,
a condition most developing country markets find hard to fulfill. This implies


that in periods of high growth, modern technology is most likely to flow to
industrialized countries. Conve rsely, economic slumps in industrialized
countries may increase opportunities for lat e industrializers to purchase
modern technology. Steel firms th emselv es ar e designers and developers of
steel technologies. With a per sistent downturn when few new investments
ar e planned in th e sector, thes e firms attempt to maintain their commercial
viability by selling technologies. This industry crisis in th e advanced countries
is a favorable condition for hard bargaining by states which ar e looking for
state-of-the-art technology.
    An autonomous state with a long-term industrial strategy can significantly
influ ence th e terms and conditions of technology transfer. First, autonomy
provides greater freedom to pursue technology-based econ omic growth.
Second, since pric es of technology ho ver between th e minimum acceptable
price to the seller and th e maximum pric e offered by th e bu yer, there is plent y
of room for bargaining. States pu sh ed by concerns about str uct ur al
competitiveness begin to act as quasi-entrepreneurs and seek to minimize th e
cost of technology and restrictive practices imposed by suppliers . If th e state
is not overwhelmingly burdened with demands from existing political forc es,
it can bargain effectively and decisively with for eign companies for best-
practice technologies.
    Th e international transfer of technology takes numerous forms. Principal
among them ar e turnkey proj ects and technology licen sing, with or without
for eign equity. Theoretically it can be ar gued that turnkey proj ects (exc ept
for process industries with em bodied technology in equipment) are least likely
to contribute to local learning since mo st aspects of th e proj ect, from
conc eption to completion, ar e undertaken by for eign suppliers. Thi s makes it
difficult to unp ackage th e technology and contain co sts. Second, if for eign
equity is invol ved in turnkey proj ects, th en for eign suppliers ma y hinder th e
complete transfer of technical knowledge to th e ho st economy, resulting in
large for eign exchange outflows in the form of imports of spares, repatriation
of profits, ro yalti es, and technology fees. It ma y th erefore be prudent to
encourage full-fledged local participation in turnkey proj ects, retain ownership
with national capital, and minimize restrictions on th e use of th e technology.
Irr especti ve of th e mode of technology transfer, local participation in terms
of equity, as well as in physical planning, con struction, staffing, and continuous
training ar e critical ingr edients to building technological capability. These
seemingly mundane activities cumulatively ens ure that a firm is on th e
technological learning curve.
    Th e transfer of technology by innovators, which for steel technology ar e
equipment suppliers, many of whom ar e steel producers th emselv es, takes
place through licensing and turnkey proj ects . The involvement of th e supplier
is pa ssive in the first case and acti ve in th e second. However, in either case th e
bu yer must be active in th e adoption and adaptation process. Because
inno vation is mainly of th e incr emental type, even mature technologies such


as those em bodied in equipment ar e always undergoing improvements. For a
lat e industrializer the ability to continue "imitating" changing technical
specifications of equipment means not onl y sustained investments in plant
and equipment but also conscious efforts to keep up with the shifting frontier,"
Diffusion of modern technology at th e industry level calls for capacity
expansion. The high capital requirem ents for modern steel mills also call for
inv estment planning and coordination, a process which can only be
orchestrated at th e state level.
    Lat e industrializing countries en dowed with a proactive state can take
advantage of th e crisis afflicting th e industry lead ers. Mobilizing capital and
securing technology on a sustained basis can plac e th e industry on a higher
technological trajectory. Stat es unhampered by a multitude of social and
political demands ar e best abl e to keep up with int ernational standards . For
others, capacity ex pans ion is more mundane and do es not reflect the
competitive edge of th e industry. Over staffing, poor organizational and
managerial capability, low productivity, financial losses, and rising debts ar e
typical outcomes. The dominance of th e state sector in an envir onment of
institutional weakness nullifies whatever entrepreneur ial urg es exist. Rent-
see k in g act ivity is normal und er th e circumstances, resulting in a
technologically underdeveloped industry. D evelopmental st at es (a fa
Johnson) ar e not lock ed into such institutional incap acit y. Instead, th ey can
choose the right technology, bargain effectively with suppliers, complete
proj ects on tim e, and keep production co sts low (Eno s and Park 1988:215).
Th ey follow a strategic path of state int ervention in closing th e technology
gap, taking maximum advantage of the increa sing size of industrial
op er ations (Figure 2.1) .
    A developmental state can sustain a virtuous loop of investm ent and
productivity. By providing sub sidies to big firms or establishing state-owned
enterprises (SOEs), th e state can distort relative prices and induce industrial
growth in targeted sectors like steel. The mobilization of investment is
conducted by th e state (Johnson 1984; Woo 1991) through th e centrally
go verned banking syste m . Variou s instruments such as tax br eaks and
preferential tariffs ar e used to prop up domestic industr y. High investment in
th e industry eases technology acquisition and thus sustains high productivity
growth, leading to further industri al expa nsion. Com petitiveness is thus a
consequenc e of productivity differenc es, arising from state-administer ed
allocation of resources.
    To disaggr egate the proc ess of global and industry level restructuring we
combine the ideas contained in the stylized version of restructuring with that
of the virtuous loop (see Figur e 2.2). We begin with capitalist competition,
ensuing technological ch ange, and resulting industrial cri sis. Small- scale
technology is superseded by technology with progressively increasing economies
of scale. Thus th e small er integrated bla st furnace (BF)-open hearth furnace
(OHF)-ingot process gives wa y to th e large-scal e BF-basic ox ygen furnace


                          subsidies     BIG FIRMS                    Distorted
         STATE                            SOEs                        relative
                                        Oligopoly f - - - -            prices
                                      SUbCOnjctin g
                                                                                       pow er

                                        Small firms

                                                                    Growth &




                                                                 High investment
                                                              Technology acquisition
        output                        State-of-the-art          Learning-by-doing

Figure 2.1 A virtuous cycle of technological change and industrial expansion
Note: SOEs=State-owned enterprises

(BOF)-continuous casting (CC) integra ted process. Capitalist firms and late
industria lizing states strategically adopt new technologies, with delayed
adoption by US firms and a fast -second approach by japan." Slow and rapid
strategies create a technological gap, with increasing obsolescence on the one
h an d and increasing competitiveness on the ot her. Rapid expansion by Japan
and economic maturity of the US contribute to excess capacity (Ballance
1987:215). Ot her late industria lizing countries with similar goa ls of industria l
tr ansfor mation add to the excess capacity prob lem.
    The institutional response to the crisis of declining profitability, rising
corporate debt, and plant imbalances due to a slowdown in investments is
plan t closures, selective modernization, and co llaborations wit h those who
have the capi ta l and know-how. Declining investment in plant and equipment
imp lies the "distress" sale of technology. The institutional capacity of late
industria lizing countries pursuing an industrial po licy determines the na tu re
of technology transfer. Those with embedded autonomy are better positioned
t o bargain with tec hnology supp liers for the acquisition of bestpractice
standards. The effect of the first roun d of major restr uct ur ing is a new
international division of labor in whic h new producers capture a sizable
po rtion of the domestic ma rket, especially in underserved local ma rke ts,
pa rticu larly in certain types of products. Thus, the scrapping of blast furnaces
and steelmaking BOFs imp lies a shortage of semi -finished products such as
slabs . Inadequate investment also means the inability to meet new demands


            Capitalist              Technological
r--- competition                       change

        New innovations
                                      adoption               I   Delayed

                                                      K          Chon~".

                                                                  capacity   )--
            of labor
                                             Technology transfer
                                            Institutional capacity
           Plant closures                                            ~          Proftt rate
       Partial modernization                 RESTRUCTURING                         Debt
           Jointventures                                                     Plantimbalances

Figure 2.2 An analytical framework for industrial restructuring
Notes: BF=blast furnace; BOF =bas ic ox ygen furnace; CC =continuous cast ing ; ISle im por t
substitution industrialization ; Dk le dircctly reduced iron ; EAF=electr ic arc furn ace

such as high-end galva nized and coa te d sheets. Sho rtfall in th ese pro ducts is
met by new pr oducers who have made th e necessar y investments and have
been able to keep up technologically. The sup pliers of th ese pr oduct s to th e
US h ave been Jap an , Kor ea, and Brazi l, amo ng others .
   After a series of adjustments by th e industry as a who le to indus tria l crisis
an d growth, th e pro cess of restruct uring is once agai n set in motion . Th is
time, too, th e dise qui libri um is genera ted by new innovatio ns. Alternative,
sma ll-scale steelmaking pro cesses are develop ed to reduce inves tme nt and


operating costs. Incr emental innovations in EAF, new casting processes, such
as the thin-slab, and scrap substitutes, such as directly reduc ed iron, repr esent
a fundamental shift in steelmaking technology. Entry barriers ar e low ered
and investment opportunities op en up. Other related technologies ar e also
found in the market, substituting expensive coke ovens and blast furnaces
but complementing th e traditional BOF process. With easier industry entry,
ent repre n eur ial breakthroughs become more common. Oligopolistic
competition is weakened by smaller, flexible, and more adv enturous firms
willing to challenge the traditional markets of integrated producers. And in
some cases, as in India, wh ere entre preneur ial activity has been limited, th e
removal of state-imposed institutional constraints marks the beginnings of
new arrangements in capitalist development. State-led capitalist regulation
in lat e industrializing countries is no longer ad equate to cop e with incr eased
mobility of capital. The maturity of private capital under state tutelage and
the global restructuring alr eady underway introduce new international
pressures. For the industry as a whol e there is no other option but to restructure
and regroup with ren ewed vigor.

Restructuring is a two-pronged process, on e in which firms in earl y
industrializers, for strategic reasons, forgo their dominant position in th e
industry by not investing in new innovations and states in lat e industrializing
countries seek out strategic industries for capitalist development. A
supportive institutional envir onme nt for industrial catch-up in a world of
diffusion of best-practice standards introduces the possibility of technological
convergence. The shifting technological frontier also op ens up opportunities
(and constraints), alt ering the competitiven ess of firms located in different
    Who takes advantage of the new technology dep ends on a host of
institutionally determined factors, the principal on e being innovative behavior.
The process of capitalist industrialization by latecomers was favorably initiated
by exploiting large-scale blast furnace technologies while the same technologies
posed a formidable investment barrier for both established and new producers.
However, changing competitiveness is not assumed away. Instead, th e issue
is how institutional capacity influences th e adjustment process on th e on e
hand and th e process of acquisition, diffu sion, and effective deployment of
technologies on the other. By reducing entry barriers, the emergence of small er,
alt ernative technologies offers unpreced ented commercial and technological
opportunities for both advanc ed and late capitalist economies. With th e retreat
of th e state from industrial production in lat e industrializing countries, we
can expect entrepreneurs to exploit th e advantages of new technology. The
restructuring process is neith er linear nor sequ ential. Rather, it is an on-going
on e, in which the interplay between technological evo lut ion and the


institutional responses continues to dictate the dir ection and quality of
capitalist production.
   Th e industry is far less int ernationalized than other industries. The rol e of
multinationals from mature econ omies has been largely in th e ar ea of
technology transfer. While this has certainly contributed to a shifting
international division of labor, foreign ownership of the steel industry is limited.
Th at may change. As technology becomes more wid espread and as th e private
sector begins to playa greater rol e in the industry, we can anticipate incr eased
internationalization. New technologies with commercial pro spects will attract
entre prene urs who are less tied to past technologies. With each round of
innovations and restructuring n ew industrial locations will eme r ge.
Counterintuitively w e can argu e that these ar e not just low-cost late
industrializing countries but also advanced capitalist countries as restructuring
and technological change for eclos e previous options and op en up new
opportunities . As capitalist competition drives technological change,
entrepreneurs, wh en presented with new opportunities, ar e likely to continue
that competitive tradition. It thus should com e as no surprise to find th e
contraction, expansion, and subsequent rejuvenation of th e steel industry
integral to un even capitalist development of th e world economy.

             STEEL INDUSTRY

In this chapter we examine the strategic response of the US steel industry to
technological change. We show that past investments in old technology and
risk-averse behavior of US firms placed the industry on a lower technological
trajectory. The slow diffusion of modern technology and import competition
in the US undermined the financial strength of American steel firms, leading
to obsolete excess capacity. The industry responded with major restructuring
at the plant level, reorganizing production assets by eliminating capacity and
selectively modernizing plants. Unable to cope with the crisis, the industry
also abandoned its self-regulatory approach in favor of a more cooperative
business-government partnership. However, protectionism did not resolve
the issue of technological backwardness. Instead, the net results of adjustment
have been a loss in steel capacity, a decline in the level of employment, plant
imbalances, and technological lethargy.
    The chapter is divided into three main sections. The first provides
historical background to the evolution of steel technologies in general and
the US steel industry in particular. The second covers the strategic response
of US firms to technological change, identifying the reasons for the slow
diffusion of modern technology in the US. The final section examines the
crisis of the industry and the different ways by which the industry has
restructured, including changes in institutional arrangements for capitalist
regulation. Occasional references to the Japanese industry are made for
comparative purposes.

                         The historical back drop
Prior to the long economic downturn, from the early 1870s until the end of
the nineteenth century, the US steel industry was highly fragmented. In 1898
there were over 200 establishments in the US with a total capacity under 15
mt (Gold et at. 1984:490,580). The depression of the 1870s and the ensuing


"merger movement" of the 1890s produced significant industrial
concentration. For the US economy as a whole there were over 3,000 mergers
during 1898-1902 (Agnew 1987:58). In 1901, US Steel Corporation was
formed through a series of mergers involving about 165 separate companies.
It became the world's first billion dollar company and controlled over 60
percent of the US steel market (Edwards 1979:42).
   The principal technology employed was the crucible process, which was
suited to small-scale production.' In 1864, Sir Henry Bessemer's "converter"
for transforming iron into steel was introduced in the US (Rosenberg and
Birdzell 1986:246). A blast furnace (BF) was used to melt iron which was
then converted to molten steel in a Bessemer furnace. Just a few years later, in
1870, the first open-hearth furnace (OHF) was introduced. The diffusion of
this technology at the expense of the Bessemer was quite rapid (see Figure
3.1). OHF technology allowed the use of local ores and also had the advantage
of fuel efficiency. Additionally, capital cost was reduced due to the smaller
scale of operations (Paskoff 1990:85). Toward the end of the nineteenth
century almost three-quarters of total output was under the Bessemer process.
However, by 1915 nearly three-quarters of steel production used the OHF
process. In the US, OHF output peaked around 1950. After 1960, two other
technologies, the electric arc furnace (EAF) and the basic oxygen furnace
(BOF), gained the industry's acceptance.
   Technological change in the steel industry has been toward increasing scale
of production. This was as much a "technical" requirement as it was a
"political" one. For example, large firms (and plants) became synonymous
with economies of scale as costs fell and output expanded.' Confrontation
between large corporations and labor induced firms to adopt capital-intensive
production (Rosenberg and Birdzell 1986:212). The size of OHFs ranged
from 40 to 50 tons capacity compared to the 5 to 15 tons capacity under the
Bessemer process (Gold et at. 1980:534). Between 1899 and 1935 the average
furnace capacity increased by more than seven times, reaching 300 ton capacity
in some cases. As the size of steelmaking OHFs increased so did the size of
ironmaking blast furnaces. By 1935 there were seventy-two steel
establishments with a total capacity of 57 mt; about 90 percent of that
production used the open hearth process (Gold et al. 1984:140,531). Large
size also meant underutilization of capacity during economic slowdowns.
For example, the utilization rate from 1915 to 1935 averaged less than 60
percent with about 51 percent of capacity lying idle during the Great
Depression (1929-32) (Iron Age, various issues, and American Iron and Steel
Institute, Annual Statistical Report, various issues).
   In contrast to the US experience, Japan at the turn of the century had a
small iron and steel industry, with several producers using the small-scale,
traditional tatara method. The Meiji regime, on grounds of national
development, initiated large-scale steel production toward the end of the
nineteenth century. Although the Bessemer process was adopted by the Meiji





.e- 60
iii 50
....     40
         30                                                   - - . Bessemer
         20                                                   - - - - . Electric

              1896 1900 1905 1910 1915   1920 1925 1930 1935 1940 1945 1950        1955 1960 1965

Figure 3.1 Diffusion of Bessemer and open hearth furnaces (OHF) in the US
Sources: US Department of Commerce (1975); Amer ican Iron and Steel Inst itute, Annual
Statistical Report. various issues

regime, the military's prefe rence for lar ger and better-quality output dicta ted
the adoption of the mo re expensive OHF (Morris -Suzuki 1994 :80, 126).3
These plants we re much smaller than those in the US. For example, the
Tanaka faci lity had O HF with on ly 10 tons capacity (Okazaki 1990:173).
In 1901, the same yea r US Steel was founded, the Japanese set up the sta te -
owned Yaw at a Works with th e help of German technology. This was Japan's
first modern faci lity. From a production level of 230,000 t ons of finis hed
steel in 1914 , Yaw at a inc reased its ou tput t o 900,000 t ons in 1929. The
corr esponding figu res fo r Japan 's total steel ou tput we re 280,000 tons and
2.03 mt (ibid.: 168 ). Japanese plant size inc reased dramatically but it
remained behin d US norms . Relat ively low wages in Japan discouraged the
imports of th e mos t modern techn ologies being developed in th e US and
    In 1934 Yawat a Steel was merged with six other firms to crea te th e Japan
Iron and Steel Company, in which the sta te held 70 percent of the equity
(Kap lan 1972 :13 8-9). Nine years later thirty-five blast furnaces produce d a
peak outpu t of 7.65 mt steel (Vesta l 1993:11 6), an annual average output of
219,000 ton s per furnace. Post-war raw ma teria l sho rtages had red uced
ca pacity ut ilization, prompting government interventio n in various ways.
Under th e America n occupation Japan ese steel subsi dies were eliminate d and
US aid cut back. The immediate effect of subsidy elimination was a slowing
down of capacity growth but in the medium term it forced Japanese firms to
be mo re cost conscious . The " deco ncentra tion" laws imposed by th e US-led


Supreme Command of the Allied Powers in 1950 denationalized Japan Iron
and Steel Company, splitting it into Fuji and Yawata Steel.

                 Post-war innovations in steel production
Very broadly, there are three main types of production units that manufacture
the entire range of steel products: (a) the integrated segment, (b) the minimill
sector, and (c) high-quality alloy and stainless steel producers (specialty steel).
Both the integrated and minimill segments produce carbon steel products,
while specialty steel firms, often using minimill technology, produce non-
ferrous alloys. The principal raw materials used for integrated production
are iron ore, sinter, coal, limestone, and small quantities of scrap. These inputs
are charged into the blast furnace (BF) to make molten pig iron or hot metal.
The hot metal is then charged into a basic oxygen furnace (BOF) to be
converted to molten steel (see Figure 3.2). The raw steel is poured into
continuous casters (CC) or poured into ingots. Either way they are converted
to semi-finished products such as slabs, blooms, and billets." Continuous
casting is superior to ingot casting as semi-finished products can be made
directly without the intermediate stages of transferring the molten steel,
pouring into soaking pits, and reheating. These products are then rolled and
further processed into various finished products.
    Minimills are smaller units than integrated plants and use scrap (and
directly reduced iron ore) as the chief raw materials. An electric arc furnace
(EAF) is used to purify and melt the scrap before the molten steel is
continuously cast and rolled into final products. This technology emerged
as early as 1880. With the high cost of electricity, EAFs were used mainly
for more expensive aluminum refining, and only in 1901 was the production
process applied to the steel industry, particularly for specialty steels (see
Athreye 1994:54).5 Minimill products generally do not have the high
metallurgical properties that are possible using integrated production. Thus
it is not surprising to find 60-75 percent of output in major steel producing
countries coming from the integrated segment. Many integrated plants have
EAFs as auxiliary units to make use of "home" scrap generated by integrated
    Integrated production is very hardware intensive. As we have seen, the
tendency of steelmaking technology has been toward increasing scale of
operations. In the post-war period, steel equipment, such as blast furnaces
and BOFs, has witnessed dramatic increases in size. And in keeping with
future output expansion, new integrated plants or greenfields are designed
with the minimum efficient scale (MES). Naturally, the investment required
for such plants has been high. On the other hand, minimills cost much less
because of their smaller scale. With major differences in process technology,
integrated production is mainly for flat products. Flat products include sheets
and plates that find wide application in automotive, machinery, and consumer

                                                              Torpedo . )                             RH-degassing
                                                          C     car


                                                                                               a)                                (   Wire rOdS")

                                                                                             Hot rolled
     Minimill production process                                                             sheets in
     (can be combined with blast furnace)                                                       coil

Figure 3.2 Unit operations in steelmaking seque nce: Integtated blast furnace-basic oxygen furnace-conti nuous casti ng and minimill (electric
arc furnace)
N ote: aesteel products

appliance sectors (Table 3. 1). Thi s specialization is a shift from pa st practices
wh en both lon g and flat products were produced by int egrated mills. With
minimills being bett er suited to low value added, high carbon lon g products,
th eir strength ha s been in bars, wir e rods, and small shapes, principally used
in construction . With recent inno vation s, minimills are increa singl y
encro aching on th e flat products market (see Cha pter 7). Tabl e 3. 1 pr esent s
major steel products by process and end use.
    Technol ogic al ch an ge in the stee l in dus try pr ogr essed t oward cost
efficiency an d product qu ality. Ad vanc es h ave been dir ect ed t o removin g
impurities, such as ph osphor ou s from the iron ore, reducin g pr oduction
tim e, im provin g product qu ality, or introducing new pro ducts. All of th ese
developments wer e dictated by cost and qu ality con sideration s (see Tabl e
3.2 ). For exam ple, th e sho rter pr ocessing time of Bessem er s compar ed to
OHFs was mor e th an offset by better-qu ality output and reduced ene rgy
costs. Tw o radic al steel technologies were introduced in th e pos t-wa r per iod :
th e BOF in 1952 an d continu ou s casting (CC) in 1950. 6 Both entai led th e
use of lar ge-scale blast furnaces. Th e BOF spee de d up th e pr oc ess o f
convert in g iro n t o stee l. Fr om 100 minutes t ak en by the OHF, pr oc ess
time by a BOF was r educed t o 6 0 m inutes a n d less. At th e time o f its

Table 3. 1 M ajor steel pro duct mark ets by type of operation and end use

Product                           Integrated        Minimills     End use

Flat products
   Hot rolled sheets              x                               Pipe makers/auto
   Cold rolled sheets             x                               Auto/appliances
   Coated sheets                  x                               Auto/appliances/
  Plates                          x                 x             Construction/machinery
  Welded pipeltube                x                               Oillgas/construction
Long products
  Hot rolled bars                 x                 x             Auto/construction
  Wire rods                       x                 x             Wire makers/
  Reinforcing bars                x                 x             Construction
  Small structural shapes         x                 x             Construction
  Large structural shapes         x                               Construction
  Rails                           x                               Railways
  Wheels and axles                x                               Railways
  Seamless tubes                  x                 x             Construction/auto/oil/gas

Sources: Barnett and Crandall (1986:11), Amer ican Iron and Steel Institu te, Annual Statistical
Reports, var ious yea rs; a nd Depa rtment of Planning, County of Alleghe ny (1988:3- 4-3-5)
a Recent entry by minimills
b Limi ted productio n

Table 3.2 M ajor innova tio ns in th e steel industry

Process                                Year         Capacity/heat (tons)     Timetaken (minutes)      Production advantage

  Bessemer                             1856          70                       25                      Cost savings as no fuel is used.
  Besserner-T                          1878          60                       30
OHP                                                                                                   Scrap from Bessemer could be used.
 OHF                                   1868         100-500                  900                      Better quality steel, better process
    Ajax"                              1958         200                      350                      control, heat is generated using waste
                                                                                                      gases. Reduced energy costs, better
Electric process
  EAF                                  1914          25-75 (special steel)   330                      Replaced small-scale crucible steel,
  Larger EAFs                          1970         100-200 (ordinary)       240                      larger output.
  BOF                                  1952         350 (initially 60)        35 (initially 60)       Better quality, larger output, possible
  Rotor                                1953         100                       90                      short-heat time so scale advantage.
  Kalldo                               1954         150                       80
  Oxygen-bottom Maxshute               1968         220 (initially 30-80)     25 (initially 30- 80)
Continuous casting                     1950                                                           Better quality, reduced energy costs,
                                                                                                      higher yield.

Source: Athre ye (1994:55- 7, 65-8 )
a   =o xygen injection

commercialization the BOF was less expensive than the OHF, both in terms
of energy costs and capital costs. Continuous casting, developed in 1950,
bypassed the laborious ingot stage and the energy-intensive reheating of ingots
for finishing. Instead, it allowed the direct pouring of molten steel to produce
semi-finished products, such as slabs, billets, and blooms.

                  Strategic adoption of new innovations

               Path dependence and technological inertia
The rise and fall of an industry over the long haul is the outcome of several
factors. The decline of British steel has been explained by systemic factors
such as loss of comparative advantage, but also by idiosyncratic factors
such as its pursuit of free trade policy and entrepreneurial failures (see Suzuki
1990).7 Firms make strategic decisions, and past actions influence future
decisions. The historical experience demonstrates that the choice of
technological systems is institutionally derived, even if resource availability
and cost factors have a bearing on that selection. For example, in Britain
abundant skilled labor favored the adoption of more capital-intensive OHF
technology. This technology was also appropriate for producing rail
products. With numerous railroad projects in the British empire, the choice
of OHF was inevitable. Similarly, American competitiveness of the nineteenth
century rested on cheap ore prices. The Bessemer furnaces facilitated the
use of such ores, compelling large-scale operations and encouraging vertical
   In the US the dominance of US Steel, within an oligopolistic industrial
structure, did not encourage innovation-based competition. Instead, the
industry collectively sought market stability and high financial returns.! In
the pre-war period prices were rigid, while in the post-war period they were
"upward rigid," meaning they kept on increasing at regular intervals (Adams
and Mueller 1990:84). This was not unusual, given past collusive schemes in
the industry such as the Pittsburgh Plus system." More importantly, the strategy
of US Steel to maintain control over markets by regulating steel prices (Tiffany
1990:249) had a telling effect on the choice of innovations. American steel
firms avoided new technologies since high profits were ensured in any case
with self-regulated prices. It would have been irrational to incur additional
investment in new technologies. The war-related jump in steel demand
requiring output expansion also conditioned the adoption of "well-tried
equipment and operating practices" (Gold et at. 1980:545).
   In the immediate post-war period the American industry was reluctant to
expand steel production capacity, conveniently avoiding new technologies. It
feared overcapacity (Tiffany 1988:17-18, 65) and strategically deployed older
technology to meet new competition. Such an attitude was not unjustified as
the US government, against the wishes of the industry, had invested over $2


billion in the industry, increasing steelmaking capacity by 30 percent
(Scheurman 1986:47). The industry remained conservative despite 90 percent
capacity utilization during the 1940s. Concerned with full employment and
anticipated steel shortages in the post-war economic boom, the US government
encouraged additional capacity in the industry. The industry was once again
reluctant to follow through. However, US economic growth did ultimately
encourage some expansion in steelmaking capacity.
    Whatever new steelmaking capacity was created, the American industry
opted for the older OHF and not the recent BOF. The general conservatism
toward new technology was further reinforced by incremental improvements
in OHF technology. For example, although "oxygenation" techniques, such
as in the BOF, were already in use, these techniques were also introduced in
the OHF. The industry was thus locked-in to older technology (Barnett and
Schorsch 1983:22-30). Also, the Korean War demanded rapid capacity
expansion and under such circumstances it was rational to adopt true and
tried technology rather than tinker with the new. These "sunk" costs associated
with the OHF further hindered the diffusion of new innovations. The 44 mt
of steel capacity added during the 1950-60 period (American Iron and Steel
Institute, various years) were mostly in older OHF rather than in BOF
technology. Regional concentration also limited the diffusion of new
technology. Of the forty-three new open hearth furnaces constructed from
1950 to 1953, thirty-nine were located in Pennsylvania, Ohio, Indiana, and
Illinois (Hogan 1971:1321). In keeping with the general scale trend, the
industry introduced larger OHFs, some over 600 tons. By 1960, the US
industry had 90 percent of total capacity under OHF technology. Both
institutional response and technical developments decisively locked in the
industry for the foreseeable future on a technological trajectory different from
the industry's technological frontier.
    Only in the mid-1960s did large US firms adopt the BOF on a wider scale,
almost fifteen years after its first commercial application in Austria (Adams
and Mueller 1990:89).10 By then the cost of and efficiency in the use of oxygen
had become favorable and virtually the entire industry agreed on the
superiority of the BOF over OHF. l l The US industry operating within a
capitalist context simply could not ignore the benefits of new innovations. It
invested an average of $2 billion a year from 1965 to 1970, raising BOF
production to nearly 50 percent of output (Tiffany 1990:257).
    However, technological change in the American industry was too little
and came too late. It was already on a lower technological trajectory.
Regional imbalances and the rising cost of inputs, both a legacy of the
industry's market stabilizing strategy, rendered investments in new
technology ineffective for competitiveness. They were insufficient to meet
new post-war market demand and inadequate to compete with other
producers who were on a different technological trajectory. Population and
industrial growth in California created heavy demand for steel products,


which existing mills could not adequately meet. The new finishing facilities,
such as rolling mills, were targeted for war-related plates and heavy
structurals production, whereas peacetime needs were largely in consumer
items, such as sheets and strips. The pre-war west coast market demand
was approximately 3.5 mt whereas production capacity was only about 2
mt. The shortfall was met by Bethlehem's Sparrows Point plant in Maryland
and Tennessee Coal and Iron in Birmingham, Alabama. The inland location
of these mills was unattractive, making delivery of iron and coal difficult to
far-flung markets. Also, in a short-sighted move, US firms shied away from
investing in the west coast market. For example, US Steel, Bethlehem and
National Steel abandoned post-war plans to construct new plants in the
west coast region." Only Kaiser Steel retained a major facility in California.
However, Kaiser failed to make timely investments for modernization, which
resulted in the plant's technological obsolescence."
   There were problems with plant siting as well. During World War II the
US government financed new steel plants but the bulk of the investment
benefited the existing steelmaking belt, extending from the northeast to the
midwest. The northeastern region garnered nearly 75 percent of war-related
new capacity due to low construction costs at existing plant sites and the
availability of. skilled labor. The non-traditional areas secured only four major
new integrated steel plants-two in Texas and one each in California and
Utah.!' The more remote and obsolete plants in the Pittsburgh region were
not phased out despite underutilization of capacity."
   Technological conservatism was also dictated by oligopolistic industry
structure. The vertical integration favored by American big business was
popular with steel firms, giving them firmer control over prices through
backward linkages to raw materials, such as coal and iron ore. However,
new cheaper sources of high-quality ore in Latin America and elsewhere
reduced the competitiveness of US firms as they were saddled with high-cost
captive mines. The development of ocean-faring bulk carriers further eroded
the cost advantages of US firms and gave importers of raw materials an
unprecedented advantage. The purchase of government-owned steel mills by
existing firms strengthened the industry structure."
   The stability of market shares in the post-war period is indicative of the
absence of innovation-led competition. Approximately 70 percent of national
production was accounted for by eight firms, compared to 84 percent in
1904 (American Iron and Steel Institute, various years, and Iron Age, various
issues)." ? The reshuffling of individual firms through mergers, spinoffs,
diversification, and plant shutdowns did not significantly alter the market
structure." The oligopolistic structure continued to discourage the massive
investments required for new plants and directed managerial attention to
controlling market shares and policing their industry rivals.
   The US industry attempted to avoid market instability at great cost. One
approach was the strategic adoption of existing OHF technology rather


than the BOP. Another was maintaining industrial peace. After the longest
steel strike, in 1959, the US industry with the help of a labor agreement
sought to reduce the costs associated with high wages and liberal pension
schemes. An Experimental Negotiation Agreement between the industry
and organized labor came into effect in 1973 that swapped a 3 percent real
wage increase plus other benefits with a no-strike clause (see Barnett and
Crandall 1986:40-1) . The industry preferred to share a part of its high
profits with its labor rather than lose a large, captive steel market in the US
to industrial disruptions.

            Diffusion lags and import competition in the US
There are two reasons for the relatively slow diffusion of BOF technology
in the US (Oster 1982). The first, as already indicated, is "path-
dependence." Past decisions as well as idiosyncratic factors dictate future
strategies. Thus large sunk costs or improvements in existing OHF
technology rendered the new BOF commercially unattractive, particularly
from a short-term, cash flow point of view. The second is that institutional
arrangements influence innovative behavior. The dominance of US Steel
among a coterie of large firms produced a non-competitive environment
(Adams and Mueller 1990). The Japanese were not handicapped by an
oligopolistic structure like that of the US. There were large firms but they
were of more or less equal size . Recognizing significant energy savings
and higher total productivity, Japanese industry aggressively introduced
new technology (Figure 3.3).
   The Japanese, unencumbered by past investment in OHF technology, were
willing to experiment with the BOF, which used far less scrap (in combination
with iron ore) than the OHF (Yonekura 1990:223-4). Declining international
prices for raw materials such as iron ore and coke provided the Japanese
with significant advantages over the US (Crandall 1981:20). Cheaper global
sourcing of raw materials created significant opportunity for the Japanese to
invest in large-scale, deep water mills. Market stability was important for the
Japanese but it did not come at the expense of the massive benefits of new
technologies (Borrus 1983:72).
   Almost from the very beginning of the post-war era, Japan had moved on
to a different technological trajectory than the US. However, Japanese firms
were also subject to the logic of path dependence. For example, among the
big Japanese firms Kawasaki Steel with recent vintages of "proven" OHF
technology was the last to introduce the BOP. But by 1965 Japan already
produced nearly 70 percent of steel using BOF technology compared to US
share of under 20 percent. In the 1960s Japanese steel firms created gigantic
plants, taking full advantage of economies of scale to lower operating costs.
In 1952, when the US dominated the global steel industry, it had four plants
with 4-6 mt capacity, while Japan had none (Adams and Mueller 1990:83).

                                CHANGE AN D CRISIS IN T H E US STEE L IND USTRY



'5ao                                                    /....-------   .........   -...   ..........

o                                                   I
                                                                                                              --- --         t

~     60                                    I
'0                                      I                                                                         ,
~                                   /                                                                         ,
s:                              /
Ul    40
<f.                         I                                                                             t

                    /                                                                                                 --USBOF
      20        /                                                                                                     - -Japan BOF

                                                         1970                                      1980                   1990

Figure 3.3 Adoption of basic oxyge n furn ace (BOF) and continuo us casting (CC) in
           th e US and Japan
Sources: Amer ican Iron and Steel Institute, Annual Statistica l Report, various years ; Japan Iron
and Steel Federation, Monthly Report, various issues

By 1988 the US had three plant s of th is size comp ared to Japan's two . H owever,
Jap an had ten plants above 6 mt while th e US had only two.
    The size of steelmaking operatio ns increase d pro gressively with larger blast
furnaces. Of th e 149 large-sized blast furnaces above 2, 000 m' , listed in th e
Korean Iron and Steel Associa tio n's Steel Statistical Book, 199 7, pr ior to
1975 only 7 percent of th e BFs exceeded 3,000 m'. After 1975 th e sha re was
over 20 percent (see Figure 3.4). The Japanese ke pt abreas t with such changes
by introducing unu sually large-scale blast furnaces. For exa mple, in th e same
list th e US had only seven BF' s while Jap an had th irt y-two. Th e average US
size was 2,747 m! com pared to Japan' s 3,860 m ", There were only two furnaces
in th e US th at exceeded 3,0 00 m! while Jap an had twentythree, three of th em
over 5, 000 rrr'. Unlike th e US industry, large size in Jap an did not inhibit
industry innovations, rather, it encouraged it.
    The 1959 steel strike ma rke d the beginn ing of a new tr end in th e US steel
industry. Imports for th e first time exceeded exports. The slow rat e of BOF
diffusion and increasi ng inpu t costs exace rbated th e import tr end . Increasing
for eign competitio n, especially from Japan , compe lled US firms to ado pt th e
BOF on a wide r scale, speedi ng up th e process after an initia l lag of ten years
(see Figure 3.3). Th is expansion substi tu ted BOF technology for th e OHF



       5,000                         •       • •                  *••• •*
                                         •     •                  •          ••
       4,000                       ••                             •
                                    • • *•••
       3,000        •                  ••                           ••• •    •
                                          •• • •                        •

                                  ••* ••••• •• •                  • •• •

                                       :                            •• • •
       2,000      ••• ••                      ••
                                     ••• • •• •

                                                • Blast furnace capacity (cu m)
                                                  Linear (blast furnance capacity (cu m»

           1960               1970                  1980              1990           2000

Figure 3.4 Large-sized blast furnaces in the world
Sourc e: Korea Iron and Steel Associat ion (1997)

process, which by then had become definitively obsolete. Steel capacity in the
US expanded on ly marginally, increasing at an annual rate of 0.6 percent
from 1959-78 (Crandall 1981:24-5). The convergence of BOF diffusion
between the US and Japan resulted mo re from the dras tic phasing ou t of
OHF capacity ra ther than new additions of BOFs. Japan, on th e ot her hand,
increased no t on ly its BOF ou tput but also sha rp ly ex panded total steel
ca paci ty, fr om less than 10 mt in 1955 to nea rly 100 mt by 1970. Its exports
to the US also increased sha rp ly.
    The technological conse rva tism of US pro ducers combined with aggressive
expansion by foreign firms introduce d unprecedented import competitio n in
th e US ma rk et (Harris 1983). Imp orts as a sha re of ap pa rent consumption
rose cyclically th ro ugh out the pos t-wa r perio d (see Figure 3.5) . Im port
competition was especia lly acu te in th e western region, which abso rbed a
disprop ortion ate sha re of these im ports as growing region al dem an d for high-
quality steel products cou ld n ot be met efficiently by mill s locat ed in th e
tradition al indus tria l belt. Prohibitively high inland tr an spor tation costs added
to th e severity of com peti tio n. Natio na lly, impo rts of steel increased by over
200 perce nt fro m 1959 to 1970. In th is period imp ort penetr at ion (imports
as a sha re of appa rent consumptio n) for the US as a who le increased fro m 6




                                                                            t         •
                                                                          ,                "
                                                                          ,"               \,'


                                                                                                        ---- . Imports
                                                                                                        - - % Imports

        1~   1~1~              1~1~1m                    1m           1m                  1~     1~1~    1~1m            1~

Figure 3.5 Rising steel imports in the US
Source: American Iron and Steel Institute, Annual Statistica l Report, various years

percent to over 14 percent. For the western region th e increase wa s far grea ter:
from 12 percent to 28 percent. Californ ia accounted for approximatel y 75
percent of the western sta tes' demand (Warren 198 8:275 ) and Jap an increased
its sha re from 39 perc ent to 83 perc ent of imports in the region (US
International Trade Co mmission 1989a: 4-1 ). By 19 70 Japan supplied 21
percent of th e west co ast market (H oga n 1971:1471 ).

                                         The crisis compounded

                      The profit crisis and the investment barrier
Industrial ex pa nsion in th e US rested lar gely on pri vat e initi ati ve, relying on
retained earn ings and ra ising equity capital for new investm ent. H owever,
with declining profitability it becam e difficult to rai se new capital (Figure
3.6). In th e 1950-78 peri od, th e rate of return on equity after tax es for iron
and steel firm s exceeded th e US manufacturing aver age in onl y six years
(Crandall 1981 :29 ).19A delayed investment strategy once set in motion further
constrained capital spending for plant modernization. Low-cost producer s
such as Japan could deliver high-qualit y steel at lower prices. Of th e thirteen
years spa nning th e 19 75-8 7 period, net income (total revenues-total
costseprofits) w as negative for five years (1982-6 ), and total losses during




                                                         , , ... '" , , ,
                                                    ,,                    ,
                                          ..... '                             ,.   ,,

                                                                                        \ ......


                                                                                    - - Steel
     2                                                                              - - - _. Manufacturing


Figure 3.6 Relative profitability of the US steel industry (% of equity)
Sources: Cra nda ll (1981); Nationa l Academy of Engineering (1985 )

thi s period exceeded th e tot al profits during 1975-87 by over $3 billion. Th e
rat e of return in th e in dus try during 1955-8 3 exceede d th e ave rage
manufacturing rat e in only four years (Na tio na l Academy of Engineering
1985:113 ). Th e steel secto r did not perfo rm as well as th e manufacturing
indus try as a who le, with relat ive profita bility declining dr astically during
th e oil embargo period of th e 1970s.
    With th e profit crisis intensifying, it became increasi ngly difficult even to
maintain pla nt and eq uipment in goo d wo rki ng order. As depreciat ion
allowances did not keep pace with actua l repl acement costs, existing plant
and equipment cou ld not be upgraded to best-pr actice sta ndards. Traditionally,
the industry did not rely on long-term loans for investment purp oses. H owever,
with th e wo rsening profit situation th e US industry 's long-term debt began
to rise dr amat ically, making long-term commitments to new innova tio ns even
more remote. Until 1966 the ratio of long-term debts to total externa l financing
(equity-sloans) remained unde r 25 percent. H owever, th e debt to eq uity rat io,
th ough low by Japan ese sta nda rds, rose to nearly 45 percent in 19 78 from
11.2 percent in 1950. A high proportion of sha reho lders' eq uity mea nt a
larger portion of net income being pai d as dividend s." While net inco me
declined significantly over time wit h severa l years showing negat ive income
in th e 1980s, cash dividend s remained stea dy (Figure 3.7). Only during 1975
and 1976, th e two years in which capita l ex penditures excee ded $3 billion ,
did combined dividen ds fall to abo ut 44 percent of net income. Th is was the
lowest ratio since 1938. But in 19 77 net income was $22.3 million whereas



              -- --   Net income
              - - Long-tenn debt
              - - - - capital expend~ures
      6,000   - - Cesh dividends

~ 2,000

              1953 1956 1959 1962 1965 1968 1971




Figure 3.7 Financinginvestment in the US steel industry
Source: American Iron and Steel Institut e, Annual Statistical Report, various years

dividends amounted to $555 million. This meant that pr eviousl y earne d cash
reserves were disbursed as dividends." Th e long-term debt of th e industry
stood at over $5.5 billion at th e end of 198 7, having increa sed six-fold since
1950. In th e 1980s and 1990s, th e average annual lon g-term debt of th e US
steel industr y exceeded $6 billion.
   The US steel industry has been unable to keep up with in vestment
requirement s. Th e slow diffu sion of BOF and relat ed techn ologies and low
financial returns dict ated th e pace of investm ent. Between 1961 and 19 70
much of the investment of about $16.5 billion went into replacing open hearths
with BOFs and th e installation of a number of continuous hot strip mills.
H owever, giant blast furnaces pion eered by th e Japanese to complement th e
larger BOFs were not pursued by Americ an firm s. Thus moderni zation ha s
tended to be piecemeal, selected new equipment oft en being retr ofitted with
ob solete equipment. As a result many US plant s suffered from plant imbalances
and cost inefficiencies. Even th ou gh th e annual average investm ent exceeded
$2 billion, th e amount represented an average replacement rate of und er 3
percent during 1950-78 (Office of Techn ology Assessment 1980 ). On average,
capital expenditures on plant and equipment varied from $1 billion to $2.7
billion per year. Th is implied a persistent gap between replacement cost and
actual investm ent in plant and eq uipment.
   M od ern ization of th e Americ an steel industr y ha s been also limited by th e


massive cap ital outlays asso ciated w ith incr easing econo mies of scale. The
Office of Technol ogy Assessment of the US Co ng ress estimate d a tot al
expe nditure of $2 8 billion or $2.8 billion a year for mod ernizati on , covering
roughl y 13 8 mt of capacity. Thi s did n ot include an y greenfield cap acit y. The
actual expenditure for th e last thirty years has been con sider abl y less. Steel
corp or at ion s had neither th e intern al reserves nor th e market reputation to
raise capital from th e market .
    Th e ability to invest in new technology became especia lly difficult with
th e rising cost of new plants. Severa l estima tes calculat ed in th e 19 70 s show
investm ent cost per ton of steelma king cap acit y in th e US to vary between
$1,000 and $1,500 (see Tabl e 3.3). With rising costs, other estima tes have
been higher. Assuming a minimum efficient plant size of 3. 5 mt of steel per
year, th e investm ent requirement varied between $3.5 billion and $5.2 billion .
Assuming further sca le advantages accrui ng from plant expa nsion, tot al
investm ent requirement easily reach ed $10 billion for a single plant. Clearly
thi s was out of th e reach of most steel firms in th e US. M or e recent actua l
expe nditures for new plants are closer to $3, 000 per ton . Greenfield plants in
Brazil and India, such as Acom in as and Vizag, spent $3, 000 and more per
ton of cap acit y.
    Add ition ally, dom estic con sumption of steel was leveling off, further
discouragin g new in vestments. The con venti on al steel -inte nsi ty index ,
measuring steel con sumption as a sha re of national income, shows a stea dy
decline: from nearl y 100 net ton s for every $1 milli on (1972) to 58 ton s (US
Dep artment of Co mmerce 19 85 ). The annua l gro wth rat e of steel-intensity
use" was 0.1 percent during 1960-73 and -5 .1 perc ent during 19 73-8 7
wh ereas th e US steel con sumption growth rate during th e two per iod s w as 4
percent and -2.7 percent respecti vely (Tilto n 1990:40 , 42 ). Clearly, under
th ese condition s to commit severa l billion dollar s in new techn ologies wo uld
have been an irr ati on al investm ent.
    As an investm ent stra tegy, rounding out old mill s was a cheap er optio n.
The investment cost ranged from a low of 2 7 percent to 60 percent of greenfield
costs. This stra tegy enta iled outright elimina tion, replacement , and/or addition
of specific pieces of equipment. For example, severa l plants in th e US shut
down blast furnaces, ph ased out OHFs and repl aced th em with BOFs, an d
installed new continuou s caster s in existing mills. As a result investm ent costs
have been equipment-specific and included costs for inpl ant site pr epar at ion. P
Greenfield plants con structed pr ior to th e ado ption of BOF s incorp or at ed
sma ll-sized equipment in general with little ro om to accommod ate more recent
vintages. Installing new equipment required reorganizati on of the plant, which
in man y cases was not possible du e to lack of ph ysical spa ce and result ed in
severe plant imb alanc es. But the cost per ton of additio na l cap acity of
bro wnfield ex pa nsio n h as been less th an greenfiel d project s as much of th e
internal infrastructure is alrea dy th ere.


Table 3.3 Investment cost for moderni zati on and greenfields

Plants/projects          Costper ton        Remarks                      Information source

General estimate         1,105              3.4 mt capacity              Paine Webber (1990: 16)
General estimate         1,250-1,500        2 mt capacity,               Astier (1985: 30)
                                            including 2nd and
                                            3rd tier infrastructure
General estimate         2,000-3,000        2 mt plant, all              Astier (1985: 30)
General estimate         1,500-2,000        4 mt plant, all              Astier (1985: 30)
General estimate           900              2 mt in 1976 dollars         UNIDO Secretariat
                                                                         (1986: 23)
General estimate         3,500              2 mt in 1985 due to          UNlDO Secrerariat
                                            project delays               (1986: 23)
India                    1,000              2-4mt                        UNlDO Secretariat
                                                                         (1986: 23)
India                    1,154              2-4 mt (@ Rs131              Metal Bulletin (March 3,
                                            US$)                         1988:27)
Vizag, India             3,000              1.2 mt                       Personal interview, New
                                                                         Delhi with RIm',
                                                                         August 1987
lISCO, India             1,178             2.15 mt, rebuilding           Etienne etal. (1992: 177)
                                           at existing site
Kwangyang, Korea 1,000                     General estimate for         UNIDO Secretariat
                                           2.7 mt                       (1986)
                         1,132             W2,444 billion               Computed from Paine
                                           (@ W800IUS$)                 Webber (1985: 1-11)
Kwangyang                  605             2.7 mt W1,649                pasco (1987: 6)
                                           billion (@ W1,0001
                           637             2.7 mt with land             pasco (1987:          6)
                           370             2.7 mt second stage          pasco (1987:    6)
                           480             5.4 mt                       pasco (1987:    6)
CST, Brazil              1,043             3 mt slab capacity           Umegaki et al. (1985: 2)
                                           without caster
A<;ominas, Brazil       2,250              2 rnt with no caster,        Wolters (1981: 6)
                                           uninstalled rolling
                         3,050             Same as above but            Acominas, personal
                                           including interest           communication (1988)
                                           burden due to project

a Rl N l. e Rashtriya Ispa t N iga m Ltd , th e govern me nt firm spe cifica lly cr eat ed   to   man a ge
  and o pera te the Viza g stee l plant


             Crisis-inspired restructuring: disinvestment and
                           institutional change
In response to the multifaceted industry crisis of declining profits, investment
barriers, lagging technology, and increased import competition, US firms
pursued a number of interrelated strategies, including selective expansion
and modernization, in the 1960s and 1970s. Several new large-scale blast
furnaces, BOFs, and continuous casters were installed. The boom years of
1973 and 1974 added to optimistic demand projections. As a result some
greenfields were planned in addition to the two mills that were constructed
in the post-war period. However, when the industry's collapse coincided with
the rise in oil prices in the mid-1970s, US firms not only shed most expansion
plans but pursued a prolonged process of strategic disinvestment and
modernization. It also transformed the industry's governance structures by
moving away from self-regulation to more state intervention. The industry
not only sought protection from imports but individual firms consolidated
their assets through mergers and strategically established for eign
collaborations. These institutional changes were aimed at prolonging the use
of obsolete excess capacity, containing the onslaught of imports, and stemming
the financial hemorrhage.

          Excess capacity, restructuring, and plant imbalances
Two self-reinforcing elements embedded in surplus capacity can be strategically
effective for political and economic action. When domestic capacity is deemed
surplus because of the actions of foreign firms it is easier to find a collective
solution at the political level. Government intervention in favor of domestic
industry is generally sought. Second, excess capacity can be deployed to
preempt competition. The threat of price wars through dumping acts as an
entry barrier. In the US excess capacity arose because imports increasingly
cut into the slow-growing domestic market. Paradoxically, the excess capacity
in the US was a handicap rather than a defensive tool since Japanese and
other producers could technologically compete with US firms. Eliminating
excess capacity without jeopardizing cash flow became the basis for industrial
   The post-war economic boom in the US maintained high rates of capacity
utilization, despite inroads made by for eign producers. However, with the
economic slowdown of the 1970s, growing technological obsolescence, and
aggressive exports by Japan and the European Community, excess capacity
became a serious problem in the US (Figure 3.8) . The gap between installed
steelmaking capacity (or capability) and production widened significantly in
the 1970s and 1980s. Persistent low capacity utilization forced American
producers to withdraw output from the market.
   Excess capacity induced a multilayered restructuring process aimed




      140                                                                                               I

                                                                         / ..... \                      "\
c::                                                              I
                                                                     I               \..

                                                                                     '," -,   -./
                                                                                                    I       \,1
                                                                                                             ',,' ~

.s 100
                                                     I , -, .'                                                        ~                           , ...... _ - ' \              '"

e                                                "                                                                    ~          />           ,                      \ .... '
                                                 "                                                                        1,,'        -, ,'
~ 80                                                                                                                      ~'
:E    60                                 t

      40                         , --'
                                                                                                                      - - - _. Production
      20                                                                                                              - - Capacity

            1~1~           1~1~1~                       1m 1m                           1m1~1~                                        1~1~                             1~1~

Figure 3.8 Excess capacity in the US steel industry
Source: American Iron and Steel Institute, A nnua l Statistical Report, various years

ultimately at bringing domestic sup ply in lin e with demand (see also
hl.Iallachain 1993). During 1977-85 almost 40 mt of steel capacity wa s
removed (Barnett and Crandall 1986:47-8) . As a result of such capacity
elimination, th e US industr y ha s been able to close th e gap between capacity
and m ark et d emand . Thi s process of adju stment en ta ile d seve r a l
interdepend ent, and often ad hoc, strategies. Of th e ten firm s and thirty plants
involved, eleven were completely shut down, fifteen were partially closed,
three were sold, and one lat er reop ened after initi ally being shut down. M ost
of th e faciliti es affected were finishin g mills and onl y six of th em involved
steelmaking faciliti es. Curiously, four of th e six included partial shutdown of
BOFs. Th eir vintage, size, and th e basic imbalance between ironmaking,
steelma king, and finishing facilities in individual plants led to their elimination.
An excess cap acit y of steelmaking relative to finishin g impli es reducing th e
form er or, if the market holds, expanding the latter. M ark et cond itions favored
plant shutdowns and replacement of plant and equipment selectively. For
exa mple, Bethl ehem 's Spa rrows Point plant added a new blast furnace in
19 78, which was cap able of producing 10,000 tons per day compar ed to
three others producing less th an a third of th e new furnace. It also replac ed
two 220-ton BOFs with two 280-ton BOFs and combined th em with th e
existing seven open hearth furn aces.
    Armco' s restructuring ex perience is in structive of th e systema tic yet
piecemeal respon se to techn ological obso lescence and excess capacity faced


by US firms (Figure 3.9). Between 1973 and 1985 th e company halved its
steelmaking capacity to 6 mt. It shut down its H ouston plant, which it had
earlier upgraded by replacing open hearth furnaces wit h electric furnaces.
Armco also shu t down two other EAF uni ts. H owever, removing obsolete
capacity crea ted its own problems, forcing firms like Armco to find ways to
rectify the imba lances among the remaining facilities. For example, by shutting
down its hot strip mill in Ashland, Kentucky (a finishing facility), Armco had
to transfer slabs to its Middletown plant in Ohio and reship them back to
Ashland for cold ro lling (a higher value-added process).
   Other firms pursued broadly similar strategies, although each plant dicta ted

                                       ARMCO's restructuring

         Steelmaking capacity: 1973

                     From 12 mt                                                         ToB.Omt

                                          Partial shutdown (Great Lakes)

         Replaced OHFs with EAFs                Closed Houston plant              Closed 2 smaller
    (increased capacity to 2 mt in Houston)      (1 mt, BFs, EAFs)                     EAFs

             Increased capacity                                                Eliminated capacity

                    Transfer hot strips
                      for cold rolling
                                                      Rolling hot strip
                                                      Middletown, OH,
                                                     BOFs (2), OHFs (6)
                                                       Coke shortage
                                                       Excess rolling

                            Transfer slabs

                                                                              1983 Plan to add new
                                                                           5,500 tons/day BF shelved
                                                                             Estimated cost: $380 m,
                                                                           compared to $45-00 m for

Figure 3.9 ARM CO 's plant imbalances and rou ndi ng-out proc ess
Source: Adapted from Ho gan (19 84)
No tes: OHF=open hearth furn ace; EAF=electric arc furn ace; BF=blast furn ace; BOF=basic oxygen
furnace; on-oue, KY=Kentu cky


specific measures depending on the state of plant and equipment and the
overall balance of equipment and output. For example, National Steel found
itself with excess hot metal (more blast furnace capacity relative to
steelmaking) and not raw steel, consequently eliminating obsolete blast
furnaces. Bethlehem Steel also pursued similar strategies by reducing
steelmaking capacity at its Johnstown, Pennsylvania, mill and partially shutting
its Lackawanna plant in New York state. But in the process of shutting down
the steelmaking unit at Lackawanna it was left with excess coke, prompting
its sale to Weirton in Pennsylvania (which had shut down its coke ovens).
Other Bethlehem plants, such as Burns Harbor in Indiana, short of coke,
absorbed some of Lackawanna's excess.v'

                   Crisis and institutional restructuring
As selective modernization resulting in plant imbalances did not resolve the
problem of technological handicaps, the industry sought to reorganize the
institutional basis for capitalist regulation. It extended the mechanism of
self-regulation by consolidating steel production enterprises through mergers.
It selectively introduced new technologies by creating joint ventures with
foreign companies. The industry also lobbied the government for direct
assistance from the state and secured the support of labor to protect the
domestic industry. This was a significant departure from the industry's
longstanding institutional arrangements with both the government and labor
where relationships have been distant and hostile respectively. The merger
of numerous small firms in the late nineteenth and early twentieth centuries
marked the beginning of a dominant American steel industry. However,
most mergers in the post-war period have been desperate strategies by smaller
firms for survival. Between 1950 and 1970 there were forty-three cases of
mergers among steel-related firms (Federal Trade Commission 1975). Of
those, only fourteen of the acquiring companies had assets in excess of
$400 million.
    Corporate mergers in the US steel industry have not been conducive to
innovation. Instead, the purchasing company, by absorbing the undervalued
assets of another company, strengthened itself financially but did little for
technological development. Typically, fixed assets so purchased have been
disposed of to reduce debts and/or increase cash flow for the purchasing
company. However, given the anti-monopoly stance of the US Department
of Justice, every merger proposal is scrutinized so as to prevent increasing
concentration in the industry. Often selling off certain units is a condition of
the merger." But the formation of LTV Steel through acquisitions and mergers
had quite the opposite effect on its technological prowess. As early as 1956
Bethlehem's merger plans with Youngstown Sheet & Tube were blocked by
the Justice Department. In 1968 LTV Corporation, engaged in aerospace,
defense, and energy products, absorbed Jones and Laughlin (J&L)-a steel


firm. A decade later, J&L merged with Youngstown Sheet & Tub e and shut
down th e Young stown plant in 19 79 . It merged again in 1984 with Republic
Steel. 26 With successive mergers LTV has becom e th e second largest producer
in th e US and also one of th e mo st debt-ridden;"
    LTV's problems have been acute. Th ere have been severe plant imbalances
and mounting debt. It s Aliquippa works was virt ually abandoned after
dispo sing of th e bar mill. Th e Indiana H arbor plant near Chicago ha s been
short on coke, whil e th e Cleveland facility no lon ger ha s an y cok emaking
faciliti es. In addition, th e Cleveland plant has excess hot rolling cap acit y.
LTV's Pittsburgh plant, integrat ed at one tim e and now burdened with idle
EAFs, do es not produce steel but supplies coke to Indiana H arbor. The Buffalo,
New York , plant has closed perm anentl y and th e shutdown of Youngstown
plant s have created iron deficits at th e Warren, Ohio, plant. LTV Steel, despite
ha ving a market share of 13 .6 percent in 1986, had a loss of over $3 billion
and ha s been und er bankruptcy proc eedings for several years (USInternational
Trade Commission 19 88:11-76 ). Th e compan y also had 75 percent of th e
indu stry's underfunded pension claims, amounting to $2.3 billion and covering
nearl y 152,000 workers (US Int ernational Trade Co mmission 198 7a: 30).
Th e American steel industry as a whole represented 79 perc ent of all
und erfunded pension claim s in th e US.
    The persistent industr y crisis and its growing severity in th e early 1980s
pushed th e US industr y to form several joint ventures with international
competitors (see Chapter 6 ), seek govern ment assista nce, and pr ess for labor
conc ession s. Th e industr y specifically sought foreign capital and techn ology
to reorganize itself. It also abandoned production as it sought for eign
collaboration . Amon g th e four plants th at were to be sold as part of th e
merger condition between National and US Steel were US Steel's works in
Geneva, Utah, and Pitt sburg, Ca lifornia. Obviou sly thi s wa s not an attractive
proposition as both plants cat ered to th e western region. Immediately
following th e breakdown in th e merger negoti at ion s, US Steel in mid-1986
shut its Geneva, Utah, works and lat er sold it. 28 Ju st prior to its shutdow n,
ho wever, US Steel negotiated with PO SCO of South Kor ea to finance and
supply hot band s from Kor ea to th e Pitt sburg works, effectively replacin g th e
Geneva plant.
    As self-reg ulation became increa singly difficult, th e US industr y justified
govern ment protection on grounds of "unfair" for eign competition (Howell
et at. 1988:510-15 ). Beginnin g in 1968, the US government impo sed Voluntary
Restr aint Agreements (VRAs) to counter th e surge in imports, allegedly a
result of Japanese and West European unf air tr ading practices. Th e VRA s or
imp ort qu ot as were qu antitati ve limit s placed on steel imp orts and were
effective until 19 74 . Th ey were designed specifically to pro vide US firm s
with some respit e from for eign competition (see H arris 1994 ). VRA s were
negoti at ed bilaterally on a country-by-country and product-by-product basis
between th e US executive and govern ments of expo rting countries. With th e


collapse in th e US steel market and th e subsequent financi al cri sis of several
companies, th e Carte r administration introduced another policy to protect
dom estic steel producers from Japanese "dumping." Thi s wa s th e Trigger
Pr ice M ech ani sm (TPM ) which esta blishe d a minimum floor price for
imports." Thi s polic y was short-lived (see Howell et al. 1988 :520-2).
    The VRA s and th e TPM did provide some breathing space for th e US
indu str y. By limiting imports th e govern ment allowed domestic producers to
generate additiona l revenu es. The govern ment expected the indu str y to utilize
th ese additiona l resources for modernization. But th e principal effect of such
protectionist policies was an incr ease in dom estic and imported steel pric es
(Crandall 1981 :10 3-15 ). During th e 1968-74 period pric es of US steel
products ro se dramatically. From 1960 to 1968, th e period pr ecedin g th e
VRA s, steel price increa ses averaged a mere 0.45 percent a year; in th e first
four years of th e VRA s prices increa sed by nearly 7 percent a year (Adam s
and Mueller 1990:85 ). Th e periodic extension ofVRAs help ed for eign firm s
expo rt higher-grade steel products to th e US as th e agreements were ba sed on
tonnage and not value. Thus in dollar terms imports have increased despit e
recent declines in tonnage. Effectively, th e VRAs con stituted a market sha ring
arran gement between domestic and for eign suppliers. For example, in 1968
th e value of 18 mt of tot al imp orts int o th e US was $1.98 billion , wh erea s in
19 70 th e value was $1.97 billion for 13.4 mt (Ho gan 1991:144). Similarly,
th e TPM, effective 19 78-82, allowed US steelma kers to rai se th eir pric es. As
a result many steel con sum ers were forc ed to look for for eign sources of steel
to keep th eir costs down . Th e appreciation of th e US dollar also made it
difficult to keep imports at bay. Indirect imports of steel also increased during
th e TPM period.
    The Reagan and Bush administra tions imposed similar quotas. However,
with many plants closed th ere was a new crisis, namel y, market sho rtages of
several steel products. In 1982 the US-EC Steel Arr angement limited European
Community shipments to roughly 5.5 percent of US con sumption of certain
agreed-upon products. In 1984 Bethl ehem Steel, along with th e Unit ed Steel
Workers of America, jointly filed an anti-import petiti on , ultimately securing
an extension of th e VRA s to 1988, which were further extended to 1992.
During thi s period US steel pr ice increa ses were moderat ed by a depressed
economy, imports, and competition from minimills. As bl ast furnac e
technology is well suited for th e pr oduction of quality semi-finished steel
products such as slabs, th e phasing out of all integrat ed steelmaking capacity
on th e west coa st creat ed supply bottlenecks. By 1988 sho rtages of semi-
finished steel products were acute in th e west coast region . Between 198 3
and 19 88 th e western region's sha re of US imports of semi-finished steel
doubled from 15 percent to 32 percent (US Int ernational Trade Commission
1989a :5-2 ). Ironically, a policy of keeping out imp orts ha s been accomp anied
by exemptions . For exa mple, steel compani es in th e 1980s demanded th at
imp orts of semi-finished products be incr eased above th e qu otas." Thi s


reflected the plant imbalances that arose from disinvestment and the
opportunistic strategy of processing imported slabs.
   Labor from the US steel industry was also inducted into the restructuring
process. In order to downsize and cut costs firms retrenched workers and
demanded wage concessions. Since the creation of the United Steel Workers
of America (USWA) in 1936, American labor has made substantial gains in
wages and benefits. The USWA has also effectively negotiated work rules
and limits on subcontracting. In the 1980s, however, international competition
and the lack of major investments by US firms put American workers on the
defensive (Moody 1988:1-5, 177-8, 312-13). Under the threat of plant
closures concessions on wages, benefits, work rules, and the increased hiring
of non-union labor have been extracted from steel unions. USWA, contrary
to previous practice, no longer bargains with the industry as a whole, but
negotiates contracts with each company separately." This has ultimately
weakened pattern bargaining, a process that had previously provided some
security to steel workers as a whole.
   Steel industry restructuring undertaken by US firms has resulted in the
loss of 300,000 jobs since 1980. The industry also demanded wage concessions
to keep plants operating. However, many steel firms shut down plants after
extracting concessions from labor (Moody 1988:312-13; Markusen 1989:28).
In the mid-1980s Wheeling-Pitt and LTV first negotiated concessions from
labor, then filed bankruptcy, and subsequently sought additional wage and
benefit cuts. Many affected workers remained unemployed for prolonged
periods or have been unable to find full-time jobs. Those who did find jobs
outside the steel sector have tended to earn far less than their former wages
with fewer or no benefits (Bluestone and Harrison 1982:57; Deitch 1987;
Harrison and Bluestone 1988:63-5). Some workers voluntarily chose and
others were forced into early retirement. However, many of these employees
found that their companies, such as LTV, could not honor their pensions and
other benefits.
   The industry's restructuring measures have produced some of the intended
results. For example, labor productivity increased faster than wage growth.
From 1950 to 1980, US wage rates in the steel industry grew much faster
than productivity: 208 percent versus 72 percent (base year 1950). However,
since then productivity growth has outpaced wage growth. From 1980 until
1987 the hourly wage rate in real terms decreased by 7 percent, while physical
output per worker improved by 95 percent (computed from American Iron
and Steel Institute, various years)." At the same time, the number of hours
worked per week has increased by 15 percent. Thus the decline in wages has
been accompanied by the intensification of work. This near doubling of
productivity in the 1980s has been a result of large-scale rationalization of
the industry and the selective infusion of new technology in existing steel
production facilities.
   The slow diffusion of new technology marked the beginning of a long


restructuring process that included corporat e and plant rationalizations.
Competitive pressur e from global producer s in th e context of excess ob solete
cap acit y induced a wid e ran ge of rationalization steps. They included th e
strategy of disinvestment , reorganiz ation of production capacity through plant
shutdow ns, partial modernization, and merger s. Restructuring also entailed
institutional changes as th e industr y was no lon ger capable of regul ating
itself. It sought govern ment protection and called upon its workers to lobby
th e govern ment. Th e con vergenc e of lab or 's int erest with that of industr y
man ager s reflect ed a new kind of industrial rel ations, an in stitutional
arran gement th at has been formalized very effectively in th e new genera tion
minimills (see Chapter 7). N otwithstanding th e painful adjustment process,
th e industr y crisis had some redeem ing features. It forc ed steel companies to
bring cap acity into line with market demand and to cut costs. It also introduced
new plant and equipment selectively, th ereby reju ven ating th e int egrat ed
segment of th e US steel industr y in a limited way.

Th e evolution of th e US steel industr y h as been complex . From a po sition of
glo bal dom in anc e, the Amer ican industry in the post-w ar period faced
con sider able technolo gical challenges. Th e development of steel technolo gies
ha s been gea re d t ow ard reducing co st s an d increasing qu ality. As a
con sequence, new proc esses, using different raw materials, emerged. Ca pitalist
competition notwithstanding, th e US industr y stru cture was not conducive
to ad opting po st-war steel innovations. The American industr y, dominated
by US Steel , w as lar gely insulated from th e wo rld economy. The industry's
lat e start in adopting th e BOF was dict at ed by past investm ents in OHF and
incr emental inn ovat ion s introduced for th e OHF. Becau se it was thus on a
slower technological traj ectory, the US indu stry was susceptible to competition
ba sed on newer technologies. The industr y's obsession with pric e stability
through market-sharin g arra ngements for eclosed the option of deplo ying more
efficient technologies, even if varia ble costs under th e older OHF technology
were higher th an newer BOF technolo gy (Borr us 19 83:78 ). It was a stra tegic
choice not to utiliz e additional capacity.
    Fallin g behind technologically, th e industr y foun d itself sh ort on cash for
cap ital investm ent. The imp ending pr ofit crisis exa cerba te d th e situa tio n,
gene rating obso lete , ex cess cap acit y. Restructuring of th e industry w as
inevitabl e. The US industr y opte d for perman ent cap acity withdra w al and
selectively repl aced older technology w ith newer ones. Th e industry actively
courted th e govern me nt for protecti on and sta te largesse. It also mobil ized
orga nized labor to cut costs and meet th e imp ort challenge. Th ese stra tegies
postp on ed pr ice competit ion , slowed down th e diffu sion of new technologies,
an d creat ed th e spa ce to diversify int o non-steel bu siness.
    Th e industr y has adjuste d to new econo mic condit ion s. There is a lean er


and meaner US integrated segment. But it has been technologically defanged.
There are very few US technology suppliers today, despite the historical
leadership of the US in steelmaking technology. The industry, following its
conservative outlook, has avoided large-scale research and development
expenditures. The depressed market conditions further eroded its technological
lead. In 1984 the US steel industry spent $390 million on research and
development, representing approximately 0.6 percent of sales, whereas the
manufacturing average was 2.6 percent (US Congress 1987:31). On the other
hand, Japanese R&D expenditures have been 1.5 percent of sales, exceeding
US expenditure in both absolute and relative terms (Japan Iron and Steel
Federation 1987:18,29). In 1993 Nippon Steel had 2,800 personnel in R&D
(non-steel business included) compared to an estimated 800 people in the
entire US steel industry. It thus comes as no surprise to find American
technology firms withering away. Mesta Machine, a worldrenowned US-based
supplier of rolling mills, which supplied equipment even to Japanese firms,
went bankrupt due to low home demand (plant visit, Keihin Works, Nippon
Kokan, Tokyo, October 1987).
    The restructuring of the US steel industry has been intricately related to
changing innovations and institutional responses to those changes. In failing
to innovate, the US industry not only failed to meet the import challenge but
in the process it also gave up its technological leadership. As the next chapter
shows, late industrializing countries, such as Japan, not only relied on the
state to mobilize investment capital and acquire technologies from abroad
but they consciously decided to remain on a higher technological trajectory.
The Japanese restructuring is thus expected to be of a different sort: a virtuous
cycle in which a high investment rate in new technologies, rising productivity
and profitability, and reinvestment are likely to dictate the evolution of the
industry. The resulting differences in technological trajectory are expected to
contribute to the global reorganization of production capacity.

               AND SOUTH KOREA

The post-war experiences of th e Japanese and Korean steel industries have
been vastly different from that of th eir American counterparts. As this chapter
demonstrates, these two East Asian economies exhibited an industrial
robustness rarely witnessed in history. Both countries cashed in on new steel
technologies while the US industry initially opted for proven technologies
and later struggled to cop e with technological obsolescence. In contrast, Japan
and Korea aggressively invested in and diffused modern technologies by
adopting th em rapidly. At the heart of this technology strategy lay th e
unflinching support of their governments, a form of capitalist regulation that
ran counter to the self-regulation practiced by th e US industry. By being on
different technological traj ectories, both Japan and Korea decisively altered
the global distribution of capacity. But the continuing evolution of the Japanese
industry also indicates the crisis inherent in capitalist industrialization. The
systemic nature of th e problem suggests that, no matter what the form,
capitalist regulation has its limits.
   This chapter highlights the role of the late industrializing state in
orchestrating investment, strategically acquiring technologies for capitalist
industrialization, and attempting to resolve the crisis of overcapacity. The
chapter is divided into three main sections. The first provides the
investment and financial background to state-led development of the steel
industry in the two countries. The second section pr esents the strategic
acquisition of modern technology and its diffusion in Japan and Korea.
The final section discusses the nature of the industry crisis in Japan, the
response of the state, and the industry's implementation of specific
measures to resolve it.


                       State-led late industrialization

                               The background
Japan's decision to give priority to the development of its steel industry has
been responsible for rapid industrial change. The state underwrote the supply
of steel, an intermediate output used by virtually all manufacturing sectors.
State-orchestrated industrialization has long been a strategic policy. During
the Meiji era (1868-1912) transportation and communication infrastructure
were given national priority along with the development of the iron industry.
To develop the steel industry the Japanese sought best-practice standards
and enthusiastically embraced foreign technologies. Much later, Korea
carefully emulated the Japanese practice of selectively licensing foreign
technologies and ensuring their rapid adoption. By centering its economic
development program around heavy industry the Korean government also
gave priority to the development of the steel industry.
   Notwithstanding similar state strategies and technological evolution, the
rapid expansion of steelmaking capacity in Japan and Korea took place at
different times and rested on different institutional arrangements. The Japanese
industry has a much longer history than Korea's and it experienced its greatest
growth between 1955 and 1970. Modern steelmaking in Korea, though
introduced during Japanese occupation (1910-45), was virtually started from
scratch in the early 1970s, by which time the Japanese industry had already
entered its mature phase. Moreover, in Japan the limited government ownership
of the industry ended in 1950, before the breakup of the reconstituted Yawata
Group. On the other hand, the giant Korean steel company pasco has
remained in the hands of the government since its inception in 1968.
   The steel industry structures in the two countries are also very different.
The Japanese industry is characterized by an oligopolistic structure with five
to six large firms competing vigorously for market shares. In Korea the industry
is virtually monopolized by the government company. In 1995 the top five
Japanese firms produced 62 percent of the country's crude steel output, with
Nippon Steel, the world's largest steel firm, controlling over a quarter of the
Japanese market. In 1970 Nippon Steel was created by a government-
sponsored merger of two independent steel companies. Korea's pasco
controls nearly 64 percent of the Korean market, with much higher shares in
high value-added products.
   Structural differences aside, both countries illustrate a mode of capitalist
regulation in which the state patronizes rapid industrialization by strategically
acquiring modern, large-scale technologies, and coordinating investment. In
the Japanese case this approach dates back to the pre-war period. The large-
scale Kamaishi integrated ironworks was a product of state intervention
(Morris-Suzuki 1994:74-5). The more noteworthy case was the state-owned
Yawata integrated steel works set up in 1901. The Japanese government relied


on German technology to lay the foundation of a modern steel industry. In
1933 Yawata produced under a million tons of steel products, which
represented 35 percent of the Japanese market (Nippon Steel Corporation
   Capitalist regulation in Japan and Korea went beyond state-led industrial
production. In Japan it also included subsidizing private production and
strategically streamlining steel operations through mergers. In the 1880s
several Japanese state-owned enterprises were sold to private firms at
ridiculously low prices. For example, the Kamaishi Works was sold for ¥12,600
after the government had spent nearly ¥2.2 million to build it (Morris-Suzuki
1994:78). In 1934 Yawata was merged with six other companies and later
sold off to private parties, a practice that the US government also exercised
with its war-related steel mills. The state was even more involved in Korea. It
established a steel company, arranged financing from domestic and foreign
sources, and managed the enterprise from the very beginning. More
importantly, the Korean state regulated the industry by barring private firms
from setting up large-scale integrated mills and orchestrating industrial
transformation by undertaking sustained investment in the steel industry.

              Waves of investment for capacity expansion
Critical to capacity expansion has been sustained investment. In the
immediate post-war period, the Japanese government, in alliance with
private business, pursued an aggressive steel industry expansion program.
There were three "modernization and rationalization" plans for the Japanese
industry, beginning in 1951 and ending in 1973. With the banning of loans
and subsidies by the US occupation forces in the immediate post-war period,
major expansion plans were drawn up by the Japanese government to
rationalize the industry. In 1960 Japanese investment stood at ¥215 .2 million,
which increased by 470 percent by 1965 (Ministry of International Trade
and Industry, obtained from Japan Iron and Steel Federation, Tokyo, October
1987). Investment in the subsequent five-year intervals increased by 215
percent by 1970, 105 percent by 1975, and 47 percent by 1980 (¥11,686
billion). Sustained investments more than doubled crude steel capacity to
28 mt by the end of the Second Modernization Program in 1960. Capacity
again doubled by the end of the Third Program (1956-60) to 53 mt, and
again by 1972 to 124 mt (see Sato 1987). By this time Japan surpassed the
US in steel production.
   Similarly, Korean crude steel capacity doubled in 1973, the year in which
Korea's first modern blast furnace was fired. It doubled again in 1976, 1979,
1986, and 1992. Today Korea's capacity stands at nearly 40 mt. Investment
in Korea rose from a mere W 0.53 billion (about $1.67 million) in 1970 to
W 77 billion in 1985 (equivalent to $87 million). In 1996 it stood at W 604
billion (see Figure 4.1).1






        1~   1~1~1~1~1~1~1~1~1~1~1~1~

Figure 4.1 Korean investment in the steel industry
Source: Kor ea Indu strial Bank , Survey in Facility Investm ent (obta ined from Kor ea Institute of
Science and Techn ology)

    Both countries invested heavil y in th e steel industry to expand capacity
and transform th eir economies. The sustained incr ea ses in investm ent were
also du e to technological change. As we ha ve seen, th e general tr ajectory of
technological change in th e industr y h as been toward lar ger equipme nt,
taking ad vantage of econo mies of scale. As a result , steel production became
more capital-inten sive and correspondingly demanded larger outlays on
plant and equipment. To keep abreast of new innovations high investm ent
wa s m and atory. However, more th an gove r n me n t st im ulus throu gh
expans iona ry pol icies, it wa s national int erest that justified East Asian steel
production (see Woo 1991:133-5; Sheridan 1993:24-9, 132; Williams
    Th e pace of investm ent has been in line with th e ra pid po st-war dem and
in Japan and Korea . The post-war recon struction of Jap an , th e Kor ean War,
th e Vietnam War, an d th e ex port-or ient ation of both Jap an and Korea
suppo rted th e heavy investm ent pro gram. The wave of investm ent wa s self-
genera ting in a virtuous clo sed loop fashion (see Cha pter 2 ). A high rat e of
investm ent led to technological development, resulting in competitiveness.
With expan ding domestic an d globa l dem and, a high rate of cap acity
utilizati on was maintained, brin ging down unit opera ting costs, and incr easing
profitability. Hi gh pr ofit s led to further investm ent.


                        Financing the steel industry
Both Japan and Korea as late industrializers licensed foreign technologies.
They also established institutions best suited for the acquisition and diffusion
of modern know-how. First and foremost the state underwrote the steel
projects by giving high priority to the industry. Second, it adopted a policy of
rapid investment by mobilizing resources. The state used policy instruments
such as preferential credit and infrastructure support to create steelmaking
capacity. Third, it encouraged technological modernization by facilitating
the importation of foreign know-how. The state often bargained with foreign
suppliers on behalf of its national producers. From the demand side the state
ensured rapid economic growth using a variety of macroeconomic policies .
Most importantly, the state encouraged international competitiveness by
seeking out state-of-the-art technologies.

                      Financing the Japanese industry
Fearing a "weak" Japan the US occupation force reversed its policies to break
up Japanese industrial conglomerates and reduce state control in Japan. With
the impending departure of the Allied Powers, the Japanese government in
1950 focused on steel expansion as a means to economic reconstruction
(Yamawaki 1988:281). The Japanese state regrouped, creating a modified
version of its pre-war state-industry-banking nexus (Nakamura 1985:56-7).
This institutional arrangement was instrumental in mobilizing largescale
extern al financing, as opposed to relying on internal retained earnings and
shareholders' equity as in the US . Based on infant-industry and
dynamicefficiency grounds, the state subsidized coal prices and protected the
steel industry through tariffs (Shinohara 1982) . It also orchestrated a massive
investment program relying on long-term credit. The Japan Development
Bank was a leading agency in channelling resources to targeted industries
such as steel.
   The financing of the Japanese steel industry has been largely carried out
with long-term bank loans. In subsequent years, as the industry prospered
internal funds became more important for investment. There were three major
rationalization and modernization plans beginning in 1950 and ending in
1973 (Table 4.1). With the advent of the Korean War in 1950, Japanese
production by 1955 experienced a "windfall boon" as "special procurement"
by US forces injected nearly $3-56 billion (Tsuru 1994:57). Both steel and
auto industries benefited from this extern al demand, raising the industries'
income (as a share of equity) from 5.4 percent in 1949 to 30 percent in 1951.
The Ministry of International Trade and Industry (MITI) was instrumental
in facilitating and coordinating investments among the six major privately
owned firms.
   The Japanese government devised various ways to raise capital for the


Table 4.1 Post- war developm ent of the Japanese steel industry

Ist Rationalization       11.3 mt cumulative capacity  Total loans: 52%
Plan (l951-5)             Total investment ¥128.8      Long Term Credit Bank: 25%
                          billion                      Other banks: 20%
                                                       Own funds: 23%
2nd Rationalization       28.2 mt cumulative capacity  Total loans: 45%
Plan (1956-60)            Total investment ¥622.7      Long Term Credit Bank: 15%
                          billion                      Other banks: 27%
                                                       Own funds: 31 %
3rd Rationalization       127.7 mt cumulative capacity Total loans: 37%
Plan (1961-73)            Total investment ¥5,543.5    Long Term Credit Bank: 8%
                          billion                      Other banks: 27%
                                                       Own funds: 48%

Sou rces: Adap ted from Kawahi to (1972); Vestal (1993 :119, 122 , 12 6); and person al int erviews
with j ap an Iron and Steel Federat ion and Lon g Term Credit Bank of j ap an , Tok yo, November

industr y. In 1952, th e Ministr y of Fin anc e identified four sectors, including
steel, for concessionary loans. Fin ancing wa s mad e po ssible in part by th e
indu str y through govern ment tax breaks, accelerated depreciation, and other
fiscal incentives. Th e allocation of cheap loans by th e govern ment to th e
industr y signa led th e pri vate banks to lend money to th e industr y as well.
Other incenti ves for mobilizing investm ent resources included tax-deductible
export income. But one of the mo st ingeniou s wa ys the government encouraged
th e industry to invest in new capacity wa s its liberal depreciation policies. In
some instanc es 50 perc ent of equipment purchases could be depr eciated in
th e first year (Yamawaki 1988:286-8).
    However, th e bulk of th e investm ents, nearl y 45 percent, came from banks
(Vestal 1993:119). Th e long-term credit banks pro vided nearl y 25 percent of
financing for th e First Rationalization Plan of 1951-5 (over ¥ 31 billion) .
Comme rcial banks, at th e behest of MITI, contributed another 11.2 percent
at preferential terms (Kawahito 1972:27). Und er th e Second Pro gram nearly
31 percent of investm ents were met from int ernal sources, an increase of 7
percent from the first pro gram, while the share of government and commercial
bank loans fell to 15 percent. A quarter of th e total investment fund wa s
secured from international agencies, tru sts, and insurance companies. The
Kor ean War boom attracted capital to th e industry in th e form of stocks and
bonds, with nearly 25 percent of total investm ent in th e first two plan s. The
first rationalizati on program generated sufficient internal resources to finance
the second and subsequently th e third program. Stocks as a share of financing
incr eased to 27 perc ent in th e third program (Kawahito 1972:41, 59).
    The importance of long-term debts, however, did not wane. As the
government underwrote mo st of th e loans th ere wa s sufficient room to
manipulate interest rates. The control of banking acti vity by th e Finance
Ministry pu shed many Japanese banks to compete for and expand th eir loans


to tar geted industri es. It also ensured th at savings depo sited in th e po stal
system were ch annelled into heavy industr y investm ent (Jo hnso n 1984:206-
11 ). The Lon g Term Credit Bank of Jap an was specifically esta blished to
pro vide long-term loan s to targeted firm s in targeted indu stries, such as Ni ppon
Steel Co rpo ra tion and Toyot a. As one banker not ed:

    Th e mech ani sm is very, very goo d. Jap an' s average savings rat io
    aga inst disposabl e per son al incom e is between 20-25 percent. Even
    if th e rat e was 2 or 3 percent th e peopl e wo uld still dep osit th eir
    mon ey in banks. Th e savings by th e genera l public is not relat ed to
    th e interest rat e. We issue five-year bonds and collect th e mon ey
    from the public. At th e same time the city banks purchased our bonds
    an d debentures from us. With our bonds th e city banks can obta in
    mon ey from th e central bank [Bank of Jap an]. This mon ey in turn is
    used to mak e sho rt-term loan s. But by bu ying our bonds th ey are
    effectively obtai ning lon g-term fin anc ing from us for th eir client s as
    well. So we basically length ened th e sho rt-term loan . We are wo rking
    together to grow with indus tria l corpor at ion s.
        (Perso na l interview with Lon g Term Credit Bank, Tok yo, Octo ber

Even when firms issued sha res th ey were purch ased by banks, thus opening
up ano ther avenue of lon g-term lending. With th e gove rn ment-contro lled
sprea d under 1 percent th e effective lending rat e for lon g-term financ ing was
kept low, thus susta ining investm ent s.
   Th e govern ment not only influenced th e pace of investm ent in th e industry
but also indirectl y suppo rted th e developm ent of related industri es, such as
electrica l an d n on-electrical mach inery an d shi pbuilding . By m ob ilizin g
resources, th e gove rn ment laid th e foundati on for self-susta ining gro wth,
permitt ing th e steel industry to be ind ependent of gove rn ment financ ing of
steel proje cts. By th e end of th e th ird pro gram, th e Jap an ese industr y h ad
mobil ized nearl y 50 percent of its own fund s, tw ice th at of th e first plan.
Thus financing was not a major bottleneck as th e Jap an ese industry was
profitable during th is period of rap id growth. Govern ment-spo nso red, debtled
financing of investments rem oved any barrier s th at typic ally might have been
found in an underd evelop ed cap ital market.

                        Fina nc ing the K orean industry
The Kor ean gove rn me nt h ad an even grea te r impa ct on th e creat ion of its
steel industry. The outco me is all th e mor e rem arkabl e since Jap an h ad
gai ne d signifi cant opera tio na l ex perience at its Yaw at a Works whereas th e
Kor ean govern me nt h ad virtua lly n o exposure t o lar ge-scale industria l
pr oject s. The Kor ean gove rn me nt found inge nio us method s for mob ilizin g


resources, initially through war reparation funds from the Japanese and
lat er through bargaining with equipment suppliers and multilateral aid
donors. However, like Japan, Kor ea also relied on long-term loans subsidized
by th e government. Since the banking system was largely state-controlled
and th e steel industry virtually a government monopoly th ere were few
institutional impediments to securing finance. With tight control over foreign
exchange and bank credit th e Kor ean state dir ected investment toward
targeted sectors and "[herded] bu sinesses by [manipulating] the financial
system" (Woo 1991:172).
    Kor ea's steel proj ect attracted significant loan capital, both domestic
and for eign, because of th e industry's strategic importance in th e region.
Th e Japanese government had alr eady decid ed to move into non-polluting,
high-technology industries as part of its industrial upgrading program.
Extending loans and technical assistance to Kor ea was one wa y to restructure
th e steel industry in th e region. However, POSCO's reliance on foreign
loans declined significantly even as it undertook massive expansion . Th e
initial success in absorbing foreign technologies created a technologically
efficient firm, leading to an ability to rais e capital internally and from the
domestic financial market .
    Building a modern steel industry in Korea was a major objective of President
Park Chung Hee. During his first years in office in th e early 1960s, Park
approached international lenders to finance an int egrated steel mill, but th e
plans were rejected by int ernational lending agencies as too ambitious. In
1968, a consortium of companies from th e UK, France, West Germany, and
Ital y was formed to build an int egrated mill. However, negotiations broke
down and this proj ect was abandoned. Th e same year, the US Export-Import
Bank was also asked to finance the steel proj ect, but rejected th e plan.
According to on e US official: "both AID [US Agenc y for International
Development] and the [World] Bank had some reservations about assigning
a high priority to th e iron and steel proj ect " in Kor ea (Shorrok 1985:28).
This rejection was based on th e static comparative advantage argument and
th e perception that Kor ea "could never master th e technology" (Woronoff
1983:158). Th e World Bank and others also indicated conc ern about Kor ea's
ability to repay foreign loans and about th e large capacity of th e plant relati ve
to th e Kor ean economy (see Stern et at. 1995:163-5). A third attempt was
made to secure foreign loans and this time Park's regime succeeded in securing
Japanese aid.
    In th e early years of Park's rule, th e US government pr essur ed Kor ea to
recognize Japan diplomatically. Although considered political suicide at th e
time, recognition of Japan allowed Park to maintain the public posture of
market liberalization, diversify global linkages, and ultimately adopt Japan
as a model for deepening Korean industrialization. Th e US, for its part, desired
a division of labor that would involve Japan in East Asia (see Cumings 1987;
Yamazawa 1987) as a leading partner. At th e same time, surplus capital


accumulated by Japan during th e Kor ean War would ostensibly find an outlet
in South Korea. Despite significant opposition from th e Kor ean public, th e
Japan-Korea Normalization Treaty of 1965 was signe d. Park demanded war
reparations (Property Claim Funds) from the Japanese as part of the
Normalization Treaty. In this way he not onl y deflected some of th e public
outcry but was abl e to garner about $500 million from Japan as war-related
    Th e Kor ean government succeeded in marshalling sign ificant extern al
resources to finance its steel proj ect . All of th ese funds were granted to Kor ea
without th e standard controls of th e World Bank or other int ernational
bankers. This meant that th e Kor ean state was free to choose technology, size
and location of plant, and product composition. In 1969, th e governments of
Japan and Kor ea and a consortium of Japanese steel companies headed by
Nippon Steel agr eed on the financing and technical assistance for a steel mill.
Th e plan was to construct an int egrated steel mill in th e southern coastal
village of Pohang. Of the $500 million coming from Japan about $140 million
was ultimately pumped into th e Pohang proj ect (Sunoo 1989:88). A loan of
$123 million was later negotiated with Japan.
    Since the steel proj ect was a top priority of th e Korean government,
resources for th e steel mill were given priority over other proj ects using both
domestic and war reparation funds . In quick succession several important
decisions were made by Presid ent Park. In 1967 he chos e a retired military
general, Park Tae Joon, to lead th e steel proj ect . H e arranged $30 million
from the war reparation funds and another $50 million from Japan's Export-
Import Bank. Thus virtually all start-up funds for pasco were arranged
from Japanese sources. In 1968 th e state-owned company pasco was
established. In 1969 technology suppliers were identifi ed . The "Steel Industry
Promotion Law" of 1970, valid for ten years, was pass ed, granting pasco
access to long-term, low-cost for eign capital, reduced pric es on electricity,
discounts for rail transport, and limited foreign competition at home (Amsden
1989 :297). Th e law was extended for another twent y years but ultimately
discontinued in 1986. The construction of th e first phase of th e Pohang plant
was completed between 1970 and 19 73. The steel industr y received a further
boost from th e H eavy and Chemical Industrialization (H CI) Program (1973-
9), designed to shift th e Korean economy away from light industry and fost er
capital accumulation on a deeper scale (Auty 1992) . By 1983, three expansions
had been undertaken, rai sing th e total capacity of th e Poh an g plant to 9.6 mt
from its initial 1.03 mt in 1973.
    In 1981 pasco announced that it would construct a second integrated
plant at Kwangyang on the southwestern coast. Despite initial financing
problems th e Korean st ate onc e again succ essfull y mobilized resources.
pasco wanted to continue its relationship with Japanese steel companies;
however, Japanese equipme n t suppliers w er e no longer inter ested in
supplying technology to a growing competitor. pasco now captured 56


percent (1.2 mt) of the imported steel market in Japan (McCulloch 1987).
Thus POSCO was forced to look elsewhere for nearly $500 million in foreign
credits, almost 20 percent of the $2.7 billion needed for the first-phase
construction of the Kwangyang mill. The reluctance of Japanese suppliers
spurred a search for alternative technology sources. This response had its
intended impact. When Japanese suppliers realized that POSCO might
purchase the equipment from other (West European) suppliers, they resumed
aggressive competition for the contracts against European companies
(personal interview with Voest-Alpine, Seoul, October 1987). Ultimately,
the Japanese could only win a contract for hot strip mills. In this global
competitive environment POSCO was able to secure low-cost loans, with
interest rates ranging from 6.75 percent to 6.95 percent and repayment
periods between eight and eleven and a half years (Enos and Park 1988:215-
16; Innace and Dress 1992:153-5).2 POSCO's autonomy combined with a
sluggish demand for steel equipment world-wide allowed it to successfully
mobilize financing and technology,"
   Indeed, the competition among equipment suppliers for contracts with
POSCO became so fierce that Korea rejected some subsidies that were offered
by suppliers because it was feared that these subsidies would create problems
with the General Agreement on Tariffs and Trade (GATT). Shorrok (1985:40)
adds that a "disagreement between the UK and South Korean governments
[arose because] the Koreans had refused government to government aid to
reduce the interest on the deal for fear of stirring up trouble with the US."
For POSCO, obtaining easy repayment terms was not the problem. Rather,
the company had to ensure that its competitors did not interpret POSCO's
access to low-cost loans as "unfair."
   It was of course not easy to mobilize resources from abroad, given the
scale of the project, the reservations of foreign lenders, and Korea's lack of a
proven record in steel production. However, the government guaranteed loan
payments and several lenders including the US EXIM Bank entered the fray.
What is evident from Table 4.2 is the increasing importance of domestic
capital. The share of foreign capital declined from 64 percent (Pohang's second
stage) to 17 percent (Kwangyang's fourth stage). The ability to generate
internal funds was facilitated by policy funds. These were resources mobilized
from banks and specifically targeted for industrial projects. The steel industry
secured funding in conjunction with the Heavy and Chemical Industries
Program (1977-81) when over 30 percent of total domestic credit fell under
policy loans (Kang 1994:144). Maintaining low interest rates relative to the
market (the curb rate) helped the steel and related industries significantly. In
fact, real interest rates for policy loans were mostly negative until 1982. By
this time the Korean steel firm had become highly profitable and hence could
easily rely on its own funds for investment.
   Having successfully obtained financing and technology from both Japanese
and European suppliers, the site preparation for Kwangyang Works was


Table 4.2 Financing POSCO 's mills

                lncre-   Completion       Early       Construction costs ($ million)
                mental date               com-
                annual                    pletion     Domestic        Foreign       Total    Cost
                capacity                  (days)      funds c         capita!"      costs    per ton

Pohang mill
  Stage 1         1.0      07/1973          54          123   (41)    178 (59)        301         292
  Stage 2         1.6      05/1976          31          199   (36)    348 (64)        547         348
  Stage 3         2.9      12/1978         144          618   (45)    766 (55)      1,384         477
  Stage 4         3.6"     05/1983         152          945   (53)    839 (47)      1,784         496
  Total           9.6 b                    380

Kwangyang mill
 Stage 1    2.7            05/1987         57         1,394 (74)     479 (26)       1,873   694
 Stage 2    2.7            07/1988        110           893 (79)     236 (21)       1,130   418
 Stage 3    2.7            12/1990         58         2,362 (77)     725 (23)       3,087 1,143
 Stage 4    3.3            10/1992         28         1,888 (83)     374 (17)       2,263   686
 Total     11.4                           253

  Total         23.3 d                    634

Sources: PO SCO Pr ess Releases, va rious yea rs ; Kan g (19 94 :16 6): Poh a ng Ir on and Stee l
Com pa ny (n. d.); plant visits, Poh an g and Kwan gyan g, August 1995

a In two phases
b After completin g stage 4 in 1983, 0.5 rnt was increment ally added
c Percent of total costs in par enth eses
d By 1 995 a n a dd itio na l 2. 1 rnt in cr em en tal capacity was ad ded (D ' Costa 19 9 8a )

initi at ed in 1982. Within fift een years, with four stages of construction each
with rou ghl y 2 .7 mt capacity, Kw an gyan g' s tot al cap acit y stood at 11.4 mt .
An unu sual source of financing has been cost savings in con struction. Like its
pr ed ecessor at Pohang, every stage of con struction at Kw an gyan g wa s
completed ahead of schedule (Table 4.2 ). In th e 19 70s wh en unit con struction
costs were estimated to be $4 00-$500 per ton , Pohang' s first stage wa s
completed at $287 per ton . Th e savings on capital investm ent for stage on e
wa s roughl y $100 million. Similarly, wh en construction costs ro se to $1,500
per ton of capacity in th e 1980s, pasco ex pen ded onl y h alf as much.
Alth ou gh precise estima tes ar e hard to come by, it is easy to ga uge th e hu ge
savings mad e by completing pro jects quickly.

                     Institutional response to new innovations
Aside from mobilizing finances, the Japanese and Korean governments actively
sought to dictate the term s and condition s of techn ology tr an sfer. Using various
instrument s, th ey negoti at ed w ith for eign suppliers for affor da ble modern
technologies. There was, ho wever, a notable differenc e between th e industr y


structures of Japan and Korea. The Japanese government took advantage of
the domestic competitive environment bequeathed by the US. Thus the break-
up of Japan Iron and Steel Company in 1950 into Fuji and Yawata created
an industry structure with five or six large firms of roughly equal size. With
few opportunities for monopolistic behavior the state was able to diffuse
recent innovations widely. The US industry was also characterized as an
oligopoly but it did not exhibit an innovative approach. In Korea the
institutional arrangement was different. Given the severe entry barriers
associated with large-scale, capital-intensive projects, the steel project was
conceived as a monopoly from the beginning. However, as it will be shown,
the Korean state enterprise pasco was neither technologically conservative
nor a rent-seeker. Like Japanese firms, pasco pursued an aggressive
technology strategy, seeking the best industry standards already set by the
Japanese themselves.

          Technology acquisition strategy in Japan and Korea
In orchestrating the development of the steel industry, the Japanese
government, through MITI, targeted the steel industry through tax
exemptions, special depreciation rates for those purchasing new equipment,
subsidies for corporate research, and infrastructure development. It also
controlled technology flows using the 1950 "Law Concerning Foreign
Capital" for technology licensing. By favorably allocating foreign exchange
MITI encouraged the imports of foreign steel technologies. Between 1950
and 1957, forty-two Class A steel technologies were directly imported by
firms (Yamawaki 1988:284). This doubled by the end of 1965, and rose to
136 during the 1966-73 period. Virtually all the top Japanese steel firms in
the 1950s imported technologies from North America and Western Europe
(Vestal 1993:139). In addition to encouraging the acquisition of modern
technologies, MITI also intervened to keep royalty payments low by playing
off one supplier against another as the stock of foreign know-how increased.
It coordinated technology imports to avoid duplication and checked first-
comer advantages by initially staggering imports and then ensuring rapid
diffusion. For example, only one firm was permitted to license the basic oxygen
furnace (BOF) technology from a foreign supplier and another firm to
sublicense the technology to domestic firms (Morris-Suzuki 1994:191). In
this way many firms would also have equal access to foreign technologies
(Lynn 1982:83). By speeding up the diffusion process, MITI reduced Japan's
dependence on imported scrap, which was used with the older open hearth
furnace. Maintaining a competitive industry structure was also critical to the
technology diffusion process.
   As the major Japanese firms were more or less of the same size there was
competitive rivalry on the one hand and sharing of information on the other.
Both supported capacity expansion, in the first instance by capturing market


shares through investment and in the second instance by researching and
following up investment programs of rival firms. Thus, during the Second
Rationalization Plan the construction of several large blast furnaces by the
Japanese was a response to investment made by rival firms (Yonekura
1990:221). With no dominant industry leader, the industry structure in Japan
was not only conducive to the adoption of recent innovations but the
competition for market shares led to higher production capacity. With a high
interest burden due to reliance on loan capital, financial solvency depended
on high market shares and only then was an investment strategy in new,
large-scale technologies a viable response.
    Following the Japanese approach, Korea also adopted large-scale, modern
technologies. Although the very presence of a powerful Japanese industry
created a psychological barrier, the Korean government could exploit this to
its advantage. By extracting reparation funds and directing them to the steel
project, the Korean government obtained both Japanese capital and
technology. More importantly it sought to introduce best-practice
technologies. It is thus not surprising to find that Chairman Park of POSCO
rejected Nippon Steel's initial recommendation of 2.6 mt capacity for the
Pohang plant in favor of 9-1 mt. The Korean government constructed both
its integrated plants at coastal sites, allowing POSCO to minimize
transportation costs for imports of raw materials and exports of finished
steel products. Confronted with similar resource endowments, Korea followed
the Japanese strategy of constructing large-scale tidewater plants. Both mills
entailed significant land reclamation at considerable cost (Shin 1986:17; plant
visit at Pohang and Kwangyang, October 1987). Harbors, rail and road
services, and other infra structural facilities, such as wharves with large berthing
capacity, and material-handling equipment were also built.
    The decision to construct tidewater mills with their attendant infrastructural
requirements was part of a long-term strategy to promote international
competitiveness. Technical progress in the steel industry increased the
minimum efficient scale (Gold et at. 1984; Ray 1984; Adams and Mueller
1990; Mowery and Rosenberg 1991), which made tidewater mills ideally
suited for importing raw materials and exporting finished steel products on a
very large scale. The diffusion of modern technology in Korea was
singlehandedly carried out by POSCO-the state firm-which relied on
integrated steelmaking technology. Not only did the size of plants increase
but POSCO's successive expansion incorporated best-practice technologies.
Kwangyang, which was built after Pohang, began with larger initial capacity
than Pohang and each expansion introduced even greater capacity. POSCO's
plant at Kwangyang matched Japanese standards, considered to be the industry


          Th e diffusion of large-scale technology in capacity expansi on
Both countries acquired large-scale blast furnaces and basic oxygen furnaces.
As shown earlier, the rapid diffusion of modern technologies in Japan reduced
th e technological gap quickly and decisively vis-a-vis th e US (Chapter 3).
Th e Korean industry beginning in the 1970s also followed a similar tr ajectory,
ado pting th e mos t recent steel techno logies. As early as 1955, two Japanese
companies evince d an interest in obtaining BO F techno logy (Mo rris -Suzuki
1994 :193), only three years after Voest-Alpine of Austria had commercia lly
intro duce d th e innovation . The Japanese preferre d th e BOF as it did not
req uire as muc h scrap as th e open hearth technology. By 1972 Japan had 22
percent of th e wo rld's BOF capacity. Japanese firms extended their innovative
activity to both ironmaking and steelmaking facilities, pio neering some of
th e largest blast furnaces and BO Fs in th e wo rld (Figure 4.2 ). In 1959 a
1,500 rn ! BF was installed by Yawata. Ano ther twenty-five BFs of over 2,000
m! in inner volume, with average volume of 2,883 m' , were intro duce d
between 196 6 an d 1972 (Ni ppo n Steel Co r pora tio n 1973:34 ). Blast furn aces
increase d in size, fro m an average capaci ty of 0.5 mt per year in 196 8 to over
2 mt (Figure 4 .2). To keep up with th e increase d output from larger BFs, new
BOF s also increase d in size.
    Kor ea's sequencing of techn ology adop tio n followe d th e Japanese stra tegy
of keeping up with cha nging economies of scale. Beginn ing with a sma ller BF
(1,160 rn ' ) commissioned in 1973, PO SCO insta lled seven more large BFs
with an average volume of nearly 4,000 m ", Similarly, BOF adoption by Korea


I 2,500,000
 ~     2,000,000
~ 1,500,000                                                    - ... __ ....
                                                                               .. ---- ... _---   ...

:5 1,000,000
!       500,000           --'
                                                                                     - - BF
                   I~                                                                ---- BOF



Figure 4.2 Increasing size of blast furn aces (BFs) and basic oxygen furn aces (BOFs) in
           Jap an
Sour ces: Ministry of Int ern ation al Trade and Industry [Jap an], Yearbook of Iron and Steel
Statistics, var ious years, and Capital Ex penditures of Industries, var ious years


kep t pace with the cha ngi ng size of BFs, moving from 100 to ns/hea t to 250-
300 tons/heat by th e lat e 1970s. The consequence of Kor ea's tech nological
stra tegy has been the crea tion of two very lar ge integra ted plants with an
average crude steel capacity of 10 .5 mt eac h.
   By 1980 almost all indus trialized countries had phased out th e obso lete OHF
technologies in favor of BOFs. H owever, th ere have been vast qua litative and
quantita tive differences in the production capabilities of Japan and Korea. For
example the diffusion of continuous casting has been phenomenal (Table 4 .3).
Continuous casting bypasses the stage of ingots and reheating and instead produces
continuously semi-finished products like slabs and blooms from the mo lten steel
made by the BOP.Costs are reduced significantly by increasing throughput, saving
energy, increasing yield, and enhancing quality. As steelmaking outpu t is increased
with large BFs and BOFs, it was imperative to adopt large casting mac hines as
well to capture cost savings. The Japanese firms aggressively adopted this
techno logy (Yonekura 1990:225). The Korean industry followed suit, with about
20 percen t of output unde r CC in 1975, tripling the ratio by 1985, and today
covering nearly all of its steel output with this technology.
   Another area of innovation for bo th Japan and Korea has been au tomation
and compute rization of process contro ls (Figure 4 .3 ). The diffusion of
computer applications in the steel industry of Japan has been one of the
highest in the wo rld (see Ohashi 1992:21-5). Analog computers we re
introduced as early as 1962 by Fuji Steel. With increasing sca le of operation,
wider product range, and stringent quality req uirements, greater process
control has become a technical req uirement. In the 1990s, Nippon Steel
Corporation possessed 85 percent of the 241 process control computers
installed in the Japanese steel industry (Hasegawa 1996:89 ). The degr ee of
automation speeded up in the 1970s as new microelectronics technology made
inroads into traditional industries such as steel. Immediately fo llowing the
availability of such technologies, Nippon Steel Corporation pioneered the

Table 4.3 Continuous casting ratio

                    Japan           Korea           US            W Germany            Brazil

1975                31.1            19.7             9.1          24.3                 5.7
1977                40.8            31.7            12.5          34.0                17.4
1980                59.5            32.4            20.3          46.0                33.4
1983                86.3            56.6            32.1          71.8                44.3
1985                91.1            63.3            44.4          79.5                43.7
1987                93.3            83.5            59.8          88.0                45.5
1989                93.5            94.1            64.8          89.8                53.9
1990                93.9            96.1            67.4          91.3                58.5
1994                96.9            97.8            88.9          95.6                59.3

Sources : Intern ational Iron a nd Stee l Institute, International Iron and Steel Statistics ,
vanous Issues



8     0.8

.e-   0.6

e 0.4
                                                            ---- Japan

                                                            - - Korea

." 0.2
             --------- ---------- --------------
£                                                     --- --- -~_.--------
            1984    1985   1986    1987     1988     1989     1990     1991    1992     1993

Figure 4.3 Co nverge nce of au tomation in Ja pan and Korea
Sources : Korea Iron and Steel Associat ion, Steel Statistical Yearbook , 1995 ; Japan Iron and
Steel Federat ion , Th e Steel Industry of Japan, var ious years

intro duction of process and info rmation control system computers at its
Kimitsu an d Yawat a Works .
   The Korean steel industry quickly ma tched the Japanese no rm in app lying
computers for pro cess con trols (Figure 4.3 ). Of the 9,057 computers installed
in industry as a who le, 143 (1.6 percent) were in the iron and steel industry
(Korea Ir on and Steel Associa tion 1995:24 8). In 1993 this rat io was slightly
lower as computerization in ot her secto rs grew faster than in the iron and
steel industry. Rolling mills accounted for mos t of the increase, from four
units installed in 1984 to 160 in 1993. Between 1985 and 1995 the Korean
iron and steel industry expe rienced nea rly a hundred-fold increase in the
app lication of process computers (Korea Iron and Steel Association 1997:260 ).
In 1984 Japan and Korea had one process control computer for every 160,000
tons and 1.0 4 mt of annual steel output respectively. By 1990 Japan had
lowered th e ratio to 110,000 tons, while Kor ea almos t ma tched it at 120,000
tons thr ee years later.

              Excess capacity, m aturity, and J ap an ese res tructuring
As we have seen in Chapter 3, the excess capacity tha t the US industry
expe rienced was due to its technologica l leth argy, compounded by increased
competition from countries like Japan. Thus th e globa l restru cturing of th e
industry was shaped by excess capacity and consequently cutbacks in US
capacity and by large-scale expansion of the industry by countries such as
Japan an d Kor ea. H owever, within th e overa ll Eas t Asian ex pansio n of
capacity we need to disti nguis h two phases: (a) Japanese ex pansion and (b)


Japanese slowdown and Kor ean growth. Th e unity of this sequ ence, as we
have just observed in this chapter, lies in their state-led strategic adoption of
modern technologies, adding substantially to the global stock of steelmaking
capacity. However, Japan was not immune to the crisis of overcapacity. Rapid
industrial build-up by Japan also contributed to its own excess capacity, a
problem that was compounded by Japan's economic downturn (see Figure
4.4) . From the mid-1970s onward, Japan's utilization rate dropped
considerably, hovering under 70 percent throughout th e 1980s.
   The problem of excess capacity in Japan is similar to that in the US in that
capitalists in a herd-like manner responded to profit opportunities by
increasing their individual production capacity. As each Japanese firm
competed to maintain its market share, it had to ex pand capacity without
being left behind. Acting autonomously in an environment of unprecedented
economic expansion, firms could not individually restrain themselves from
investing. This is a classic capitalist dilemma: how to individually accumulate
without undermining the larg er system. The Japanese state, very successful
in goading the industry to expand capacity, was not as successful in restraining
output. It was only partially successful in restraining firms from cutthroat
competition. Although th e state established recession cartels during the
economic slowdown, the industry was not altogether immune from ensuing
price competition. With the maturity of the Japanese economy, its steel industry
was also saddled with excess capacity. Consequently, the industry also has
had to implement various restructuring measures.
   The Kor ean industry is on a differ ent path. Its expansion preceded th e
energy crisis of the 1970s and th e industry grew rapidly during a period
when Japan had already initiated the serious task of capacity cutbacks. Though


           ...........,,, "
                         .    \,   ,..   ::;;..   -
8>   60
~ 40

                                                                  ---- Japan
                                                                  -    US
     20                                                           ---- ECtotal

Figure 4.4 Declining capacity utilization in the mature economies, 1973-90
Sou rce: Pain e Webb er, World Steel Dy nami cs, various issues


the Korean expansion was fuelled largely by domestic growth, export markets
were critical to its expansion. Subjected to the same technological requirements
of scale economies, Korea also constructed large plants and thereby
contributed to global steelmaking capacity. Restructuring of the industry in
East Asia therefore must be seen as Japan's response to rapid capacity build-
up at home and Korea's continued industrial expansion.

              State-led industrial rationalization in Japan
Japanese overcapacity dates back to its expansion period of the 1960s and
1970s. The heavy investment program of the Japanese steel industry exceeded
even the government's expectations as actual demand materialized ahead of
(projected) schedule. For example, the government's 1959 estimate for 1970
demand of 38 mt was revised to 48 mt within a year, and 48 mt actually
attained in 1966 (Vestal 1993:126). The real output in 1970 was a staggering
93 mt, of which 18 mt was exported. Already MITI worked with individual
firms to preview their investment plans, comparing them with demand
forecasts. The Ministry provided investment guidance to the entire industry
by estimating capacity utilization rates. It is important to recognize that MITI
could not coerce any firm to change its investment plans. The government
left the industry's investment coordination largely to the industry, which led
to its rapid expansion.' Price controls introduced by MITI also were not very
effective." Ironically, price coordination to reduce cutthroat competition had
the unintended consequence of encouraging firms to maximize their market
shares. This led to even greater investment in steelmaking capacity (Yamawaki
   With a secular decline in capacity utilization, investment coordination to
stabilize prices took on greater urgency. Consequently, the Japanese
government consolidated the industry by reducing duplication of investment
and strengthening it financially. The government merged Yawata and Fuji to
form the New Japan Steel Company and attempted to create recession cartels
with other steel companies (Vestal 1993:132),7 The overcapacity problem of
the Japanese economy was exacerbated by rising wages, yen appreciation,
and the energy crisis of the 1970s. With economic slowdown at home and
abroad, excess capacity was no longer a temporary phenomenon. Capacity
utilization remained well below the breakeven point. Successful cost-cutting
measures through enhanced energy efficiency and higher labor productivity
could not fully compensate for the macroeconomic effects of the rising prices
of Japanese exports. Firms individually tried to capture foreign markets
through cutthroat competition, sometimes selling below costs.
    Stagnating domestic consumption added to the Japanese industry's
problems. From 1971 onward the total supply of steel (production plus net
imports) averaged 71 mt. The structure of the Japanese economy had
changed, shifting from manufacturing to the tertiary sector. Some heavy


industries such as shipbuilding also declined drastically. Macroeconomic
developments, such as cost-push inflation and rising wages, added to the
industry's problems. Excess capacity was acute in the Japanese minimill
(electric arc furnace) sector as well. In 1974, capacity utilization for this
segment was 64 percent, falling to 52 percent in 1977 (Uriu 1989:16). A
weak demand from the construction sector wreaked havoc on electric furnace
mills. Prices of minimill products fell from the breakeven mark of¥60,000
to ¥50,000 per ton (Uriu 1989:64). These developments set off
antirecessionary measures which included price controls, recession cartels,
and capacity cutbacks. Between 1978 and 1987 fifty-three older furnaces
were phased out. However, total electric arc furnace capacity increased as
new (larger) units were commissioned, aggravating the excess supply
problem (see also Uriu 1996).
   The Japanese government has made repeated attempts to coordinate
production among firms. 8 However, as in capacity expansion controls, it has
been only partially successful (Gold 1974-5:1-18). Output coordination,
designed to reduce capacity, was renewed via the Basic Stabilization Plan of
1979-83. MITI worked with industry associations, major firms and their
customers, and other independent experts to assess the extent of excess
capacity (Chow 1992). Loans were provided to "depressed" sectors for cost
reduction measures and diversification, a problem acutely felt by the older
and smaller EAF units. In 1986 the "Extraordinary Act for Smaller Enterprises
in Designated Areas" and in 1987 "An Act to Facilitate Smooth Structural
Adjustment" were devised to help the big corporations adjust to large-scale

          Industry crisis and firm-level restructuring in Japan
Under worsening industry conditions, the Japanese steel industry has been
also subject to restructuring. Rising energy costs of the 1970s contributed to
reduced demand and competitive pressures for Japanese firms. Though less
volatile than US capacity utilization rates, the massive post-war build-up of
steel capacity in japan could not avoid the problem of excess capacity. Virtually
all major capitalist economies confronted the specter of oversupply. In Japan
the problem became acute as several EAF units had begun to take on the big
integrated producers in selected markets, forcing firms with integrated mills
to undertake a long process of restructuring.
    During the 1981-90 period, capacity utilization of integrated producers
averaged only 60 percent for Japanese firms, 71 percent for US companies,
and over 95 percent for POSCO (Baber et at. 1993: IV-14; Kang 1994:188).
Lower utilization in Japan had a telling effect on profitability as the interest
burden was high due to new plant and equipment. Although the average
profit rate during 1967-81 was higher for Japan than the US (Kawahito
1984:3; see also Baber et at. 1993: 11-3), except for a few years profit rates


have not been significantly higher. O n th e other hand, since 1981 the rat io of
opera ting pr ofit over sales for th e Japanese steel industry as a who le has been
low (Japan Iron and Steel Ex porte rs' Associa tio n 1997 ). In th e fifteen-year
period ending in 1995, th ere were two industry downturns: fro m 1982 to
1986 and from 1992 to 1995. Th e highest rat io during these two troughs
was 6.5 percent and th e lowest 0. 8 percent (see also Figure 4.5 ). Th e big five
Jap anese steel companies earne d relatively low returns in th e 1980s, including
a negat ive 0.9 percent in 19 86. Profitabil ity has been also low during th e
most recent recession ar y period of the early 1990 s. In 1992 , the rat e of return
was 0.9 perc ent foll owed by two successive yea rs of negat ive returns.
M aintaining high opera ting rat es (to lower unit costs) was not feasible as it
implied severe pr ice competition and ens uing tr ade friction . Eliminat ing
cap acit y appeared to be th e most sensible long-term restructuring stra tegy.
   The Jap anese stra tegy of adjusting cap acity to chan ging mark et condition s
has been gra dual and systema tic. Unlik e in th e US, th e Jap anese industr y did
not suffer from technological obso lescence. Certain items, such as plates and
wire rods, were tar geted first. Excess cap acity in wire rods has been partially
due to a slow down in con struction growth and incr easing comp etition from
minimill s such as Tok yo Steel, th e lar gest EAF producer (see Hi gur ashi
1994 :16-18; see also Chapter 7). Th e shipbuilding industry, a heavy con sumer
of plates, confronted its own overcapacity problems. For exa mp le, th e average
annua l pr oduction of both heavy and medium plat es during 19 77-87 was
10 .54 mt , with a peak of 12 .75 mt in 1977 . By 198 7 thi s figur e had declined
to a bo ut 8 mt-a 37 perc ent decline. Ni ppo n Kokan, with significa nt
investm ent in th e ship ping industr y, has elimina ted a number of its plat e
mills. In 198 7-8 it built only five ships compared to ten in 1986-7 (Metal

      8                               7.1


      4   2.9
~                                                                                         2.1
e     2

          1984   1985   1986   1987   1988   1989    1990   1991   1992            1995   1996


Figure 4.5 Restru ctu ring and pro fita bility of the Jap anese steel ind ustry-
Source: Jap an Iron and Steel Federation, var ious issues
No te: a Big Five companies, incl udes non -steel business


Bulletin, June 16, 1988:22). Since 1977 Japanese exports of plates have been
halved, indicating a worldwide glut in shipbuilding capacity and a significant
build-up of capacity in Korea.' ?
    In 1987 Korea exported 31.2 percent of its total exports of steel (in dollar
terms) to Japan, representing an increase of nearly 63 percent from the previous
year (Jardine Fleming Securities 1988:6). In the 1988-93 period, Korea's
share of Japan's steel imports was over 28 percent. In 1995 Japan absorbed
54 percent of Korea's total exports of 5.22 mt. By consolidating the production
of high value-added coated sheets, Japanese firms targeted several specific
facilities to be phased out. However, the upturn in the world market in the
early 1990s, partly a product of capacity reduction in the US and elsewhere
and partly due to demand growth in the Asian region, has dampened Japanese
rationalization. The industry has been cautious also because of recent
investments in specialized production and large outstanding loans.
    With "no big plans for expansion" (personal interview, Japan Iron and
Steel Federation, Tokyo, October 1987), the Japanese industry initiated
selective phasing-out of plant and equipment and consolidating investments.
Restructuring also entailed cost-cutting measures, downsizing production
capacity, reduction in workforce, and diversification into non-steel areas (Table
4.4). As Japanese exports became less competitive du e to the appreciation of
the yen and the US industry faced shortages of high value-added steel products,
virtually all big Japanese firms establishe d joint ventures in the US (discuss ed
in Chapter 6). This strategy allowed them to circumvent US import quotas
and exploit the shortages of high-quality flat steel products in the US market
and meet expanding demand in Asia.'!
    The Rationalization Program after the 1992 "bubble" explosion has been
less concerned with steelmaking capacity adjustment. Instead, the focus has
been on balancing downstream activities and reducing operating costs, namely
administrative and labor costs. The integrated producers have aimed to reduce
their combined cost by ¥960 billion. To balance steelmaking with product
markets, Nippon Kokan shut down its seamless pip e division and Kawasaki
and Sumitomo ceased production of laminated damping steel sheets used in
high-end washing machines (Japan Economic Almanac 1995:120). In the
first round of major restructuring (1986-90), the top five integrated producers
together eliminated 39,000 workers, about 20 percent of their workforce. In
the 1994-6 round another 25 percent of the workforce or 25,800 jobs wer e
slashed, including 25 percent or 5,100 white collar jobs (Sakonji 1997:5).
Workforce reduction in the Japanese industry has used ingenious methods.
For example, all 37,000 employees at Nippon Steel Corporation were ask ed
to take two mandatory days off at lower pay. In many other cases workers
were redeployed in other divisions ." Also, with the help of an employment-
adjustment government insurance program, workers wer e encouraged to seek
early retirement. These measures resulted in Nippon Kokan's actual cost
reduction exceeding its ¥200.3 billion target by ¥0.3 billion (Sakonji 1997:6).

Table 4.4 The ra tiona lizatio n program of Japanese steel firm s (1987-96)

Company          Facility reorganization                  Personnel           Business diversification    Overall industry approach applicable to
                                                          reduction                                       all companies (1994-6)

Nippon Steel     Of 12 BFs, five to be shut down, one     Yes, by 19,000,     Electronics,                • Bringing supply and demand
0987-90)         each in Yawata, Sakai, Kamaishi,         with one-third      communication,                into balance. 1996 and 1997
                 Hirohata, Muroran. One BF to be          redeployed in       biotechnology. Target         production approximately 98
                 restarted and production to be           new business        sales \'4 trillion by         mt (first round restructuring
                 consolidated at Yawata 0), Nagoya                            1995                          reduced blast furnaces from 32
                 (2), Kimitsu (3)", Oita (2). Capacity                                                      to 25)
                 reduction from 34 mt to 24 mt. Hot
                 strip and cold rolling mill to be shut                                                   • Rationalization of production
                 down at Muroran. Introduction of                                                           and reduction of administrative
                 "scrap reduction process" at Muroran                                                       overheads (first round
                 and Hirohata. Heavy plate production                                                       restructuring entailed a reduction
                 to be reduced at Hikari and Nagoya.                                                        of 39,000 employees in five big
                 Some wire and pipe rolling will be                                                         companies; second round
                 also curtailed.                                                                            restructuring entails leaner
Nippon Kokan Blast furnaces to be reduced to 4.                                                             headquarters and reduction of
                                                          Yes, by 6,000       Yes, ceramics and new
0987-8)      Steelmaking plant and plate mill to                                                            5,100 white collar staff)
                                                                              materials. Increase sales
             be closed at Chiba . One BF to be                                to \'1 billion by1990
             shut down at Keihin and the second                                                           • Reduce excess downstream
             to be enlarged. Production to be                                                               production, such as tubes, plates
             consolidated at Fukuyama, currently
             the world's largest mill with 16 mt                                                          • Diversify into high-technology
             capacity .                                                                                     industries
Kawasaki           Shutdown of most facilities at Chiba             Yes, by 5,300   Yes, electronics and      • Diversify markets, especially in
(1987-8)           Works, including plate mill. Will                                service sector              South-East Asia
                   consolidate at Mizushima.
Sumitorno          Consolidation of Kashima. Shutdown Yes, by 6,000                 Yes, increase sales       • Price competition (international
(1986-8)           of plate and seamless pipe mill at                               in electronics and          parity)
                   Wakayama and Amagasaki                                           non-ferrous metals to
                   respectively. Also shutdown ofBF                                 \'90 billion by 1988      • Adopt minimill "lean" business
                   at Wakayama and re-ignition of a larger                                                      practices
                   one .

Kobe               Consol idation at Kakogawa.                      Yes, by 6,000   Yes, increase sales 3.5   • Reduce debts
(1986-9)                                                                            times in new business
                                                                                    to ¥350 billion by
Nisshin Steel                                                       Yes, by 1,700                             • Forge coordinated strategy with
                                                                                    1989                        minimill affiliates

Sources: Company docum ents an d person al interviews with Jap an Iron and Steel Federation, Tokyo, October 1987, N ovember 1991 , and Decemb er 1996

Figures in parenth esis for Nippon Steel indicat e nu mber of BFs
a = to re- ign ite a BF

For the industry as a whole, profit rates, though not remarkable, have
bottomed out (see also Figure 4.5).
   The last form of restructuring undertaken by the Japanese steel industry
has been investments in non-steel sectors. Unlike some of the US firms,
Japanese companies have tried to branch out into areas in which they have
some accumulated experience. However, as they have not been profitable
nor successful in absorbing surplus steel workers, Japanese companies are
rethinking their new business strategy. The five top steelmakers during the
1984-7 period established sixty-three small, new affiliates. Areas included
the development of new materials, such as ceramics; high technology, such as
electronics; chemicals; and real estate, among others." Today the focus is
more on engineering, an area of which the industry has vast accumulated
technological experience, and the efficient use of company-owned land.
Nippon Steel has begun a process of "systems integration," by interfacing its
production expertise with "future-oriented" industries, such as "unmanned
operation technology," super metals, recycling, and large-scale integrated
processing devices, as well as by fusing seemingly unrelated areas such as
steelmaking, electronics and advanced materials, life sciences, fundamental
technologies, and basic research.

The evolution of the Japanese and Korean industries demonstrates the critical
role the state has played in placing them on a higher technological trajectory.
The state not only mobilized finance through its national banking system
but also assisted domestic firms to secure modern technologies from abroad.
By maintaining an investment momentum both countries have, albeit at
different times, kept abreast of new innovations in the industry. Best-practice
standards, as embodied in large plant and equipment, were diffused quickly.
By inducing a self-reinforcing link between investment and productivity,
the steel industry in these two countries continued to witness rapid
expansion. The institutional arrangement between the state, business, and
the banking sector has been important for capitalist industrialization in
Japan and Korea.
   However, Japan has not been immune to the crisis of capitalism. Rapid
development of the industry has meant surplus capacity. With the maturity
of the Japanese economy and output expansion by countries such as Korea,
the Japanese steel industry had to initiate restructuring. The measures
implemented are similar to those introduced by the US industry: phasing
out capacity, consolidating production, cutting costs, and diversifying into
new business. But there are some differences in the restructuring process of
the two countries. The Japanese industry has not had to close plants on as
big a scale as the US industry. Its industry remains technologically sound.
More importantly, the restructuring process has been largely self-led. Except


for small sub sidi es from th e go vernment to meet certain costs associated
with industry adjustment, much of the disciplining of the industry to
coordinate investm ent and production is carried out by th e industry itself.
Exc ess capacity and increased competition has forc ed th e industry to
abandon th e competitive but traditional "cost plus rea sonable profit"
approach in favor of ref erencing pric es (plu s co st of importing) to th e mo st
competitive int ernational producer.
    By combining our understanding of th e evolution of th e steel industr y in
th e US, Japan, and Kor ea we ar e left with a number of issues pertaining to
industrial restructuring in the lar ger capitalist context. Fir st, differ ent
technological traj ectories result from institutional responses to innovation.
As we ha ve seen, th e strategy of th e Japanese and Korean government s to
invest heavily in modern technology contrasts sharply with th e reluctance of
US firm s to adopt new innovations. Thi s wa s a result of past decision s as well
as of ch an ging economic conditions. Second, as we will see, thi s uneven
diffu sion of technology contributed to changing competitiveness (discu ssed
in Cha pter 6 ). Third, states can promote capitalist development and industrial
transformation as lon g as th e ba sic production fundamentals ar e adhered to.
Th ese include, but ar e not limit ed to , best-practice standa rds, a high rate of
investment , and a strategic focu s on industrial development. Th e Japanese
case also demonstrat es that sta tes are not always capable of monitoring
capitalist development. As we will see in th e next chapter, n ot all states ar e
cap abl e of bringing about rapid industrial transformation.
    Thi s brings us to th e fourth issue: th e inevitability of capitalist cri sis. The
Japanese case clearly indic at es th at overproduction is a typic al problem of
mature econ omies. The incr ea sing economies of scale and th e diffu sion of
modern technolo gy adde d to ex cess capacity and contributed to the
reor ganization of steelma k ing capacity in th e world economy. Although th e
Kor ean steel industr y sh ows few signs of serious economic difficulties, it
rem ain s an op en qu estion wheth er th e rap id development of th e Korean
industr y is also subject to th e same forc es of economic maturity and industr y
crisis (see Cha pter 8). Thus far th e indicati on s ar e of a different sort , a major
financial crisis which th e Kor ean economy has not witnessed in th e recent
pa st. The near 50 percent depreciation of th e Kor ean won in lat e 1997 is
likely to cut both wa ys for the industr y: high prices for imported raw materials
and increased expo rt competitiveness. But given its pa st technological focu s
and investm ent pattern, th e Kor ean steel industr y can be expected to weather
th e cri sis.



A strategic industrial policy, contributing to technological strength, has been
the foundation for expanding industrial capacity in Japan and Korea. By
maintaining an investment momentum the state ensured best-practice
standards and enhanced the long-term competitiveness of the steel industry.
New innovations were rapidly adopted and the state worked with the private
sector in industrial transformation. The autonomy of th e state was critical
for securing modern technology and sustaining the high rate of capacity
expansion . The lat e industrialization of Japan and Kor ea has been bas ed on
institutional arrangements that have been conducive to successful technological
   Similarly, other late industrializing states, such as Brazil and India,
attempted to control a core sector strategically to bring about national
industrial development. The state complemented private capital by providing
a critical int ermediate industrial input, which was to be further processed by
the private sector in various downstream activities, such as construction,
automobiles, shipbuilding, and appliances. However, unlike Japan, th e
monopolization of the more expensive, integrated segment rather than the
smaller scrap-based minimills in Brazil and India indicates the state's privileged
role in national economic transformation. Capital scarcity and access to
technology have been daunting entry barriers for private capital.' At the same
time, the state, with greater r esources, has attempted to regulate
industrialization on its own terms through dir ect participation in large-scale,
integrated mills . Clearly, late industrialization has a bearing on capacity
expansion . The qu estion is: under what conditions does state intervention
guarantee successful industrial transformation and thus global restructuring?
   This chapter explores state-led capitalist industrialization in Brazil and
India. However, the objective is to bring out not only the specifics of how
the states in thes e two countries intervened but also to demonstrate that
state intervention per se cannot guarantee technological progress. The two
states share "lateness" with Japan and Korea. However, th e institutional


weakness found in Brazil and India sets them apart from th e East Asian duo.
Like Kor ea, both Brazil and India initially had to overcome th eir structural
dependence by securing foreign technologies and mobilizing resources .
However, unlike Kor ea, th ey have had a harder time fostering capitalist
industrialization. Th e weak institutional ba sis of th e state undermined th e
development of a technologically dynamic steel industry. Paradoxically, th e
private sector steel mills have not been at th e cutting edge either. From this
we can deduc e that institutional barriers wer e as much structural as the y
were polic y-induced . By differentiating th ese two cases from th e Kor ean
one we hope to establish the ways by which institutions circumscribe th e
proc ess of technology diffusion and contribute to global restructuring in a
nuanced way.
    The chapter is divid ed into four main parts. Th e first pres ents state-led
industrialization in Brazil and India-principally in th e form of industrial
policy. Three areas are covered: state ownership of the industry; public bailout
of privat e steel firms; and the regulation of steel prices. The Kor ean experience
is discussed for comparative purposes. The second part shows how th e state,
in both Brazil and India, overcame initial structural dependence to set up a
domestic steel industry. By negotiating technology and finance with for eign
suppliers, the state succeeded in creating new industrial capacity and expanding
it gradually. However, the initial momentum in establishing th e industry was
lost as institutional weakness und ermined th e abilit y to keep up with changing
technology. Th e slower pace of change in Brazil and India relative to Korea is
examined in the next section. Th e high investment requirement for new
innovations associated with rising economies of scale made it difficult for th e
state to mobilize sufficient resources. The effects of th ese constraints hav e
been proj ect delays, escalating debts, and economic losses. Th e final section
compares technological change and its diffusion in the three late industrializing
countries, clearl y demonstrating the sup erior technological capability of th e
Kor ean state-owned enterprise.

                    State-led capitalist industrialization

                   State ownership and industrial policy
State ownership of steel plants in independent India began in th e 1950s. Three
large, privatel y held plants existed prior to India's ind ependence in 1947.
Two of th ese, th e Tata Iron and Steel Company (TISCO) and th e Indian Iron
and Steel Company (lISCO) still coexist with state-owned firms . In Brazil
dir ect state invol vement came much earl ier. By 1941 th e National Steel
Company (CSN) was form ed; by 1948 Brazil's first coke-bas ed integrated
plant was completed. In Kor ea, as we saw in the pr evious chapter, th e state
created th e national steel company POS CO in 1968. Th e circumstances and
the conditions und er which th e state int ervened in th ese countries have vari ed


in detail. In all three countries reducing import dep endence has always been
a national obj ective.
    In th e post-war period each state dominated its respective steel industry
and only recently has th ere been a dilution of state ownership. With few
ex cept ions, state ownership has been largely confined to large-scale,
integrated mills producing high valu e-added flat products. Th e private sector
is active in the much smaller, scrap-based EAF units producing cheaper
long products. In all three countries roughly 60 perc ent of total steel output
is from state-owned mills (Steel Authority of India Limited, various years;
Institute Brasileiro de Siderurgia, various years; and Pohang Iron and Steel
Company, 1996; see also this volume, p. 142). In th e mid-1980s, th e shares
for Brazil and India were even higher: 75 and 70 perc ent respectively.
Although th e bulk of Brazil's int egrated mills ar e now in pri vat e hands,
nearly 80 percent of its steel capacity was under th e gov ernment prior to
privatization in the early 1990s. In India state owner ship in 1996-7 stood
at 56 perc ent (Joint Plant Committ ee 1997).
    The division of labor between th e state and th e private sector was quite
clear cut. Th e form er produced flat products using the integrated proc ess,
whil e the latt er produced long products using electric arc furn aces. Th e Indian
state sector controlled roughly 48 perc ent of flat products in 1979-80. By
1996-7 th e state sector had increased its output of flat products, such as
plates, coils, and sheets, to 78 percent. Privately owned TISCO , with an
integrated plant, also produced flat products. However, 57 percent of its
total output was devoted to long products, such as bars and rods (Tata Iron
and Steel Company 198 7). In the Brazilian case, prior to privatization virt ually
100 percent of flat product production was und er th e state. Three integrated
mills in Brazil, form erly all state-owned, also produced nearl y 100 percent of
flat products. In Korea the industry structure is similar, with POSCO producing
th e bulk of flat products. All three countries exhibit a rising share of flat
products in th e overall product mix, indicating greater complexity in its
industrial structure.
    Industrial policy in all three countries also regulated th e number of players
in th e industry, effectively by barring entry of pri vate capital, domestic and
for eign. Brazil was th e onl y country among th e three wh ere minor for eign
ownership was permitted in th e int egrated segment. Th e Indian government
in the early 1950s allowed TISCO to ex pand capacity to 2 mt but was
prudent enough to make sure that th e company did not enter the flat products
market in a big way. This would hav e undermined production at state-
owned Rourkela and Bokaro plants . It also deni ed th e Birlas, on e of th e
larg est famil y-owned, highly diver sified bu siness houses, an entry into th e
steel business (Krishna Moorthy 1984:60) . In Kor ea, H yundai's requ ests to
enter th e int egrated steel segment ha ve been repeatedly deni ed for fear of
overcapacity, even though state-owned POSCO has continued to ex pand


                   Bailing out privately owned steel firms
In addition to restricting the number of firms in the industry-a classic form of
capitalist regulation-each late industrializing country also designed policies
to support private sector development, including firms in the private sector.
For example, the Indian Industrial Policy Resolutions of 1948 and 1956 reserved
all new capacity in the iron and steel industry for the state. But private operations,
such as TISCO and lISCO, were spared from nationalization. The government,
by virtue of a nationalized financial system since 1969, also owns 37 percent of
TISCO's shares (Krishna Moorthy 1984:308). After several years of disastrous
performance, in 1972 lISCO was nationalized. State intervention in bailing
out private firms is also part of capitalist regulation, even if prompted by the
immediacy of a political crisis.
    In Brazil the government was forced to purchase several loss-making firms,
such as Piratini, Cofavi, Cosim, and Usiba. In other cases, although limited
foreign ownership was permitted, over time the government had to inject
needed funds, increasing its equity by default (SIDERBRAS 1987:4; and
personal interview, SIDERBRAS, Brasilia, December 1987).
    Even the Korean government has been engaged in bailing out private sector
steel firms. As recently as 1997 the Korean government was engaged in
rescuing Hanbo Steel, a privately held minimill, from a colossal debt of $5.8
billion by finding a buyer. POSCO also purchased the $1.2 billion debtridden
Sammi Steel, a specialty steel producer in the private sector. In all these cases
the state undertook production and assisted private capital in their commercial
viability, serving as the basis of capitalist transformation and, by extension,
contributing to global restructuring of the steel industry.

                     Price control and industrialization
Perhaps the most effective form of intervention to promote capitalist
industrialization has been the imposition of price ceilings for critical industrial
inputs . As steel is used in virtually all manufacturing and infrastructure
development, the state's intervention to maintain low steel prices has been
common in most late industrializing countries. Rising steel prices also tend to
be inflationary and hence the state has an interest in price controls. In an
oligopolistic setting price is determined by "cost plus margin" and in the
absence of competition the temptation to charge high prices is also great.
The irony is that the state cannot act like a capitalist to promote capitalism;
that is, despite its near monopoly control the state must restrain itself from
making superprofits. Prices are regulated to ensure that downstream users
benefit from cheap steel, even if it means heavy losses for state-owned firms.
   The general Brazilian policy has been to keep prices as low as possible
(Dahlman 1978:95). With 1969 as the base, Brazilian steel prices until
1987 without exception have varied negatively from this base (personal


interview, SIDERERAS, Brasilia, December 1987). Th e World Bank, in
on e of its internal reports, remarked that price controls cost Brazilian
steel producers over $14. 5 billion during th e 1977-88 period (World Bank
1992:60), while another state em ployee in 1987 claimed a loss of $6.5
billion solely due to price controls (personal interview, SIDERBRAS,
Brasilia December 1987). Th ese loss es have been a part and parcel of
state-led capitalist regulation.
    As th e Indian state increas ed its grip ov er th e country's econ omy,
administered steel prices since th e 1960s became important in order to
strengthen th e overall state sector. From 1961 to 1981 prices of Indian steel
products have been administered by th e Joint Plant Committee (JPC), a cartel
form ed by all integrated producers, including TISCO and th e nationalized
railway department (a large consumer). Most of th e state steel sector's output
is absorbed by other public sector firms, euphemistically term ed "priority"
sectors. Thes e include defense, railways, power, coal, engineering, oil, post
and telegraph, irrigation and th e like. In 1985-6, 41 percent of th e state
sector's output was sold directly to other government departments (Steel
Authority of India Limit ed 1987a: 222-8). Even th e only private sector
integrated company, TISCO, supplied over 30 percent of its output to th e
public sector during 1986-7 (Tata Iron and Steel Co. 1987). Although prices
were deregulated in 1981 th ey remained until recentl y under the indirect
control of the Ministry of Steel: th e Iron and Steel Controller-who headed
th e Joint Plant Committee. As one staff member of th e government's steel
company noted:

    There has been a policy of und erpricing so far. Even today it continues.
    The reason is that we are in th e public sector so profit is not our
    motive. It is to supply steel to actual users on a subsidized ba sis.
    There ha ve been products, such as railway mat erials, sleepers, and
    structurals that we hav e sold at a loss. Becaus e a high percentage of
    th e steel we produce is used by one government sector or another
    our ability to raise prices is limit ed. It is the government that has to
    ultimately pay for th e high er pric es. We don't hav e th e freedom to
    change prices. Our only obj ective has been to ensure supplies. All
    pricing polici es go to th e Ministry. Even th e distribution of steel is
    controlled by the Iron and Steel Contro ller who ultimately determines
    th e allocation of final output according to priority sectors.
                        (Personal interview, SAIL, N ew Delhi, July 1987)

The symbiotic relationship between th e state and private capital was even
more pronounced in Brazil as th e state propped up transnational capital for
industrial transformation (Evans 1979). Th e economic and political cri sis of
th e 1960s, conjoined with th e inflationary growth of th e previous decade,
diminished investment outlets. Th e shortfall in demand along with capacity


interview, SIDERERAS, Brasilia, December 1987). Th e World Bank, in
on e of its internal reports, remarked that price controls cost Brazilian
steel producers over $14. 5 billion during th e 1977-88 period (World Bank
1992:60), while another state em ployee in 1987 claimed a loss of $6.5
billion solely due to price controls (personal interview, SIDERBRAS,
Brasilia December 1987). Th ese loss es have been a part and parcel of
state-led capitalist regulation.
    As th e Indian state increas ed its grip ov er th e country's econ omy,
administered steel prices since th e 1960s became important in order to
strengthen th e overall state sector. From 1961 to 1981 prices of Indian steel
products have been administered by th e Joint Plant Committee (JPC), a cartel
form ed by all integrated producers, including TISCO and th e nationalized
railway department (a large consumer). Most of th e state steel sector's output
is absorbed by other public sector firms, euphemistically term ed "priority"
sectors. Thes e include defense, railways, power, coal, engineering, oil, post
and telegraph, irrigation and th e like. In 1985-6, 41 percent of th e state
sector's output was sold directly to other government departments (Steel
Authority of India Limit ed 1987a: 222-8). Even th e only private sector
integrated company, TISCO, supplied over 30 percent of its output to th e
public sector during 1986-7 (Tata Iron and Steel Co. 1987). Although prices
were deregulated in 1981 th ey remained until recentl y under the indirect
control of the Ministry of Steel: th e Iron and Steel Controller-who headed
th e Joint Plant Committee. As one staff member of th e government's steel
company noted:

    There has been a policy of und erpricing so far. Even today it continues.
    The reason is that we are in th e public sector so profit is not our
    motive. It is to supply steel to actual users on a subsidized ba sis.
    There ha ve been products, such as railway mat erials, sleepers, and
    structurals that we hav e sold at a loss. Becaus e a high percentage of
    th e steel we produce is used by one government sector or another
    our ability to raise prices is limit ed. It is the government that has to
    ultimately pay for th e high er pric es. We don't hav e th e freedom to
    change prices. Our only obj ective has been to ensure supplies. All
    pricing polici es go to th e Ministry. Even th e distribution of steel is
    controlled by the Iron and Steel Contro ller who ultimately determines
    th e allocation of final output according to priority sectors.
                        (Personal interview, SAIL, N ew Delhi, July 1987)

The symbiotic relationship between th e state and private capital was even
more pronounced in Brazil as th e state propped up transnational capital for
industrial transformation (Evans 1979). Th e economic and political cri sis of
th e 1960s, conjoined with th e inflationary growth of th e previous decade,
diminished investment outlets. Th e shortfall in demand along with capacity


expansion in flat products generated substantial excess capacity. It was only
with the military regime's liberal (protectionist) policies that some of the
dynamic industries, such as the automotive sector, developed under the aegis
of transnational capital. By Third World standards the Brazilian state has
successfully fostered a relatively large auto industry (Mericle 1984). From a
mere 38,000 units in 1960 its output jumped to 731,000 by 1989, representing
an average annual growth of 63 percent (Dicken 1992:271). In 1995 Brazil
produced 1. 7 million vehicles, spurred on by various incentives offered in the
past to the foreign-owned auto sector, such as income concentration policies
and low-priced steel. With sluggish domestic demand in the 1980s, export
competitiveness necessitated cheap steel (personal interview, Acominas, Belo
Horizonte, December 1987).2 As the auto industry controls a large number
of jobs and is a major foreign exchange earner its power and influence has
been substantial. 3
   The strong relationship between the state and private (foreign) capital to
foster capitalist development was succinctly captured by a Brazilian scholar:

    The production of capital and consumer goods was promoted by the
    bourgeoisie and by the military on the assumption that it would
    create the necessary economic structure for accumulation. Now there
    is a strong, well diversified economic structure but which is highly
    internationalized... The creation of BNDE [the National Bank for
    Economic Development] was a clear manifestation of an industrial
    push and the underwriting of private capital accumulation. Now we
    have the triple alliance with the state controlling a large part of the
    economy. The debate is how to destaticize. But the bourgeoisie wants
    the state.
      (Personal interview, Otavio Ianni, Catholic University, Sao Paulo,
                                                         November 1987)

In contrast, the Korean strategy for accumulation attempted to interface
nationally owned upstream and downstream economic activities. By keeping
prices low, the state-owned company followed the Japanese example of
supporting metalworking industries (transportation equipment, machinery,
consumer durables) and infrastructure sectors (roads, bridges, railroads, ports).
Kim (1985:10) notes that "in addition to the construction and shipbuilding
industries, the [government's attention] turned to the automotive industry."
POSCO's cost competitiveness was passed on to steel-using industries in the
form of lower prices." These included many export products manufactured
by the very large, family-owned business conglomerates (chaebols). Capitalist
regulation is best witnessed by the government's refusal to be a rent-seeker
during economic booms, even though POSCO's management privately admits
its interest in raising prices. There is a tacit understanding between the
government and POSCO that prices must be maintained at "competitive"


levels. The raison d'etre for capitalist transformation is not high financial
surplus per se; rather, it is the creation of an industrial foundation on which
capital as a whole expands. ' Instead of propping up foreign capital as in
Brazil or incurring heavy losses as in India, the Korean state steel company
by being competitive nurtured a dynamic capitalist class.

                     Overcoming structural dependence
In the absence of a dynamic capitalist class in Brazil or India, state intervention
in the steel industry was inevitable. But it was another matter to overcome
the structural dependence on international capital and technology. The post-
war reconstruction boom tended to crowd out capital and technology flows
to developing countries. Their entry at the time meant that these countries
had a harder time in negotiating credit and securing capital equipment with
suppliers located in the advanced industrialized countries. From the beginning
state-led capitalist regulation was designed to create a national productive
system by reducing the inherent structural barriers found in a competitive
capitalist system. We have seen how the Japanese government in concert
with private business and the Korean government on its own quickly built up
a technologically competitive industry. The context in which the states in
Brazil and India overcame the initial hurdles is presented below.

                   Establishing a domestic steel industry
As late industrializes, India, Brazil, and Korea were able to enter the steel
industry by bargaining and exploiting any opportunity that arose in the
international geopolitical situation. Korea was the most successful in rapidly
establishing an internationally competitive industry (Figure 5.1). The growth
and expansion has been spearheaded by POSCO-the state-owned firm.
However, Korea's private sector in the last decade also added significant
capacity: nearly 10 mt,
   Since the late 1960s Brazilian integrated capacity has also grown
significantly (Table 5.1), with an incremental addition of nearly 10 mt of
capacity in the 1970s. In three phases, spanning two decades, the Brazilian
state added a net integrated capacity of 14.5 mt. The state controlled five
large integrated facilities along with a few smaller non-integrated units, which
had resulted from bail-outs of private firms. The integrated segment's output
in 1996 stood at 18 mt.
   The Indian state actively promoted heavy industry through its five-year
plans (Table 5.2). From less than 2 percent of total public sector outlays
during the first plan, the Indian steel industry steadily gained nearly 8 percent
of total outlays in the third five-year plan. While steel's share of public sector
outlays fell, overall outlays in nominal terms roughly doubled in each
successive plan period. Correspondingly, the state's steelmaking capacity



     35,000                                                    .--.--. POSCO
                                                               - - Power (Korea)
.a   25,000




Figure 5. 1 Output expansio n by the Korean steel industry
Sources: Korea Iro n and Steel Associat ion, Steel Statistical Yearbook, var ious years; Pohang
Iron and Steel Company, perso na l com munication
N ote: Data for POSCO for selected years; Power (Korea) is a linearized trend for Korean output

Table 5.1 Integrated steel capacity expansio n in Brazil (million ton s)

Plants                    Initial    Phase I        Phase II      Phase III             1996
                          capacity   1967-74        1970-9        1973-88               output

CSN (0.27)'               1.4        1.7            2.5           4.6                   4.4
COSIPA                    0.5        1.0            2.3           3.5                   3.6
USIMINAS                  0.5        1.4            2.4           3.5                   4.0
CST                                                               3.3 (1976-83)         3.6
A<;OMINAS                                                         2.0 (1975-86)         2.4

Sources: Soares (19 87); Institute Bras ileiro de Siderurgia (1 997)
a Ini ti al cap ac it y

increased fr om 3 mt to nea rly 15 mt , capt uring ove r 80 percent of th e
co untry's integ ra te d ca pacity. From th e fo urth plan onward, inves tment
in th e Indian steel industry remained leth ar gic until th e mid-1980s, when
3 mt of capacity was added between th e six th (198 1-5) and th e seventh
(1986-90) plan .
   Both Brazi l and Ind ia co ntribu ted significantly to th e global stock of
steelmaking capacity. Brazi l, like Kor ea, also became a major exporte r of
steel products to the wo rld ma rke t (see Chap ter 6). H owever, th e quantitative
success camouflages some of th e built-in deficiencies that were often inherited
wit h structura l dep endence or were simp ly integra l to th e pro cess of late
industria lization. As discussed below, for Brazil and India to establish a

Table 5.2 Investment and expansion of India' s integrated public and priv ate sector steel industry'

Five-year plans           Overall allocation   Shareofpublic          Shareofpublic            Share ofpublic    Annual ratedcapacity of crude
in plan (FYP)             in plan (Rs billion) sector outlay          sector steel outlay      sector steel to   steel at the endof FYP (mt)
                                               to total outlay        to total outlay          totalpublic
                                                 (%)                  (%)                      sector            Public       Private     Total
                                                                                               outlay            sector       sector
1st (1951-56)                37.60               52.13                0.88                     1.68                           1.Y          1.5
2nd (195(H)l)                77.20               60.52                4.53                     7.49               3.0         3.0<         6.0
3rd (1961-66)               126.71               67.69                5.29                     7.81               5.9         3.0          8.9
4th (1969-75)               247.59               63.73                4.53                     7.10               6.9         2.0          8.9
5th (1975-81)               671.45               59.72                3.33                     5.58               8.6         2.0         10.6
6th (1981-85)             1,722.10               56.62                2.32                     4.10               9.4         2.2         11.6
7th (1986-90)             3,481.48               51.70                1.84                     3.57              12.4         2.3         14.7
8th (1992-97)             7,980.00               45.24                1.83                     4.04              14.85        3.1f        17.9

So urce: Steel Authorit y of Ind ia Lim it ed (1996)
No tes
a Total of six pub lic secto r integrated plant s and one private sector plant
b Neg ligible
c Two privat e secto r plant s (TISCO 1.0 rnt and IISCO 0.5 rnt)
d Three 1.0 mt publi c secto r plants
e Ca pacity expansion T ISCO 2 rnt and IISCO 1 rnt
f IISCO 's ca pa city ph ased out to 0.45 mt, new greenfield Vizag with 3. 0 mt commissioned

financially and technologically sound steel industry was not easy. Brazil's
relatively early entry during a period of mounting global political tension
and India's desire to launch a large-scale industry rapidly during a period of
high economic growth in the advanced capitalist countries constrained their
ability to secure modern technology. However, in both cases, the state became
the dominant player in mobilizing finance, acquiring technology, and
expanding output.

          Mobilizing finance and acquiring foreign technology
In the 1920s Brazil imported nearly 100 percent of its domestic consumption
(Baer 1969:61). By 1936 Brazil was producing about 74,000 tons of steel,
somewhat reducing its import share. Local production in the 1920s was
confined to small charcoal-based units, with Belgo Mincira, a foreign company,
producing the largest share of Brazilian output. Rising imports and the refusal
of Belgo Mineira to expand capacity prompted state intervention. International
tensions prior to World War II, which restricted access to steel technology
from the world market, compelled the military to investigate the possibilities
of establishing a steel industry in Brazil (Hilton 1982) .6Under President Getulio
Vargas, the Minister of War in 1931 created the National Steel Commission.
Although local capitalists were wary of the government's attempts to set up
a large coke-based integrated works they were never excluded (Evans
1979:89). However, the scale of investment and the complexity of integrated
steel production was much too daunting for Brazilian private capital.
   Bargaining with the governments of Germany and the US in the late 1930s
to obtain capital equipment ultimately paid off for Brazil, a typical strategy
late industrializing countries resort to in order to override structural
dependence. However, US Steel withdrew from the project when it failed to
secure equity control. This reflected the general vulnerability of borrowers of
technology. Similar to the Japanese unwillingness to transfer technology to
Korea, US Steel also found it against its interest to transfer technology and
forgo exports to the growing Brazilian market." However, lest the Germans
clinch the deal, the US Export-Import Bank in 1940 promised to provide $20
million to finance the project (Baer 1969:76). The loan was raised to $45
million. State involvement of the supplier country is also typical of such
transactions, aimed to promote national capital, in this case American
equipment suppliers. In 1941 the National Steel Company (CSN), at Volta
Redonda in the state of Rio de Janeiro, was formed. About 50 percent of the
initial investment requirement of $25 million was provided by the savings
and pension banks (Baer 1969:76). The supply of slabbing and rolling mills
was delayed by Mesta Machine of Pittsburgh as international war-like
conditions emerged. As a result, the cost of the project increased by 60 percent.
In 1948 the first integrated plant with a capacity of 0.27 mt ingots was


    The Indian experience with extern al suppliers has been similar to Brazil's
in terms of financial depend ence, scale of plants, and process technology
acquired. Western countries and international agencies, particularly the World
Bank, did not favor state-sponsored heavy industrialization in India." TISeO
notwithstanding, India's technological capacity and financial resources were
limit ed. However, th e government's plans were ambitious, targeting three
1.0 mt plants. Strategic bargaining by th e Indian state with for eign pla yers
was essential. Britain, wh en first approached, imm ediately turned down th e
requ est . Soon after, a West German consortium offered to construct a 0.5
million-ton plant at Rourkela in th e eastern state of Orissa. Th e Germans
offered onl y very small blast furnaces . Not to be outdone, Prime Minister
Jawaharlal N ehru successfully signed an agr eement with the Soviet Union
for a 1 mt plant at Bhilai in central India." Both Britain and West Germany
agreed to provide technical and capital assistance. Th e West German
consortium went further by drastically altering th e design of th e plant in
favor of larg er blast furnaces, and introduced India's first BOFs. However,
doubling th e designed capacity of the German plant to 1 million tons entailed
inordinate dela ys. Their engineering skills notwithstanding, th e Germans
squ eezed th e additional capacity into th e original plant layout causing
overcrowding and effectively curtailing future possibiliti es. 10 The British-aided
plant had no detail ed proj ect reports, reflecting th e weakness of th e Indian
state in bargaining with technology suppliers. The project was also plagued
by construction delays. All three 1.0 mt plants commission ed in India with
th e aid of British, German, and Soviet assistance exhibited a vari ety of
technological and financial attributes.
    Th e post-war expansion of th e steel industry in Brazil was state-owned
more by default than by design. Unabl e to marshall resources, the industrialists
of Sao Paulo, with the state of Sao Paulo as a partner, yielded to federal
financing for the eOSIPA plant near the city of Sao Paulo. Loans from th e
government's National Bank for Economic Development, which set up th e
new steel company in 1953, were progressively converted to equity (Baer
1995:249). The plant was finall y completed in 1965 . Rather than rel y
completely on for eign suppliers for th e eOSIPA plant, th e state-owned eSN
worked with Am erican and British suppliers to equip the plant. The
participation of a local firm indicated local technological capability. However,
like other plants of th e tim e, e O SIPA installed very small BOFs.
    Initially firms from advanced capitalist countries were heavily involved in
late industrializing countries as suppliers of both capital and technology.
Foreign ownership, however, was restricted. As Japan continued to expand
capacity at home, its need to ensure secur e sources for raw materials became
critical. Brazil and India with high-quality iron ore depo sits wer e considered
important sites. Japanese firms selectively invested in min es in both countries
and in Brazil even participated in a steel proj ect. In addition to e O SIPA,
another int egrated steel plant, USIMINAS, was proposed in th e Brazilian


state of Minas Gerais." After creating the company in 1956, negotiations
were held with the Japanese, Germans, and some East European countries.
Nippon Steel of Japan headed the consortium for the construction of a 0.5
million-ton capacity plant. Production was started in 1962. In lieu of planning
and equipment supply, the Japanese agreed to 40 percent of equity (Baer
1969:81). They also provided 60 percent of equipment credits at 6 percent
interest payable over fifteen years, with interest-free loans for the first three
years. Such soft terms were a result of Japan's coming of (industrial) age, and
USIMINAS was designed to be a showcase project (Dahlman 1978:45). It
was a modern plant, incorporating 50-ton BOFs. It may be recalled that in
the late 1960s the Japanese also participated in Korea's first integrated steel
project in Pohang. They supplied capital and technology but, unlike in Brazil,
were barred from owning equity. 12
   The pattern of ownership in Brazil, however, remained skewed in favor of
state ownership. Structural dependence implied that shortfalls arising from
construction delays must ultimately be borne by the state. This was true in
the Brazilian case, even with foreign capital participation. As in the case of
the COSIPA plant in Brazil, when Japanese construction costs escalated, the
National Bank for Economic Development (BNDE) was compelled to inject
additional funding. As a result Japanese equity was diluted to about 20
percent (Fischer et al. 1988:167), falling to about 13 percent before
COSIPA's privatization in 1991. The federal government, through BNDE,
had over 50 percent equity of both COSIPA and USIMINAS. The local state
governments owned about 24 percent each in their respective plants.
Government companies, including steel firms and the state-owned mineral
producer CVRD, and some small private groups controlled the remaining
shares. Increasingly, however, with successive expansion of its integrated
plants, SIDERBRAS-the state steel holding company-absorbed the
financial liability of these plants.
   The financing of Indian plants was relatively straightforward: the bulk of
the funds came from the state treasury, the rest from foreign sources. India's
economic status and its geopolitical alliances ensured relatively easy terms
and conditions for financing capital equipment for the first three 1.0 mt plants.
Interest rates varied from 2.5 percent to 6.3 percent with repayment periods
ranging from three to twenty-five years (Krishna Moorthy 1984:87). West
Germany had the most stringent conditions and also entailed a greater share
of foreign exchange requirement (56 percent) while the Soviet Union offered
the easiest terms at 2.5 percent interest for twelve years with a foreign exchange
component of 49 percent (Krishna Moorthy 1984:90). For the three 1.0 mt
plants, the foreign exchange component was around 51 percent of the initial
investments. The first expansion of these plants reduced the foreign exchange
component to about 47 percent.


                             Growth of steelmaking capacity
In 1971 the First National Steel Plan of Brazil outlined an installed capacity
of 20 mt by 1980. This target was not met, even though the rate of expansion
was quite rapid. Between 1960 and 1970, steel output tripled from 1.9 mt to
nearly 6 mt, whil e between 1970 and 1980 output tripled again to 15 .3 mt
(Guerra et at. 1989:40). Investment was high, picking up from 1976 until
1979 and declining thereafter. The Brazilian debt crisis dampened th e
investment momentum in th e 1980s, picking up again in the early 1990s
(Figure 5.2) . Nearly $21 billion was invested, with an annual average of
nearly $1.5 billion. Aside from capacity expansion of existing plants, two
greenfields (CST and Acominas) were constructed . CST is a technologically
modern plant with major equipment from Japan and Italy. Kawasaki Steel of
Japan and Finsider (part of th e Ita lian state-owned Italisider) each hav e 13
percent capital participation in CST (personal communication from CST,
May 1988). Prior to its privatization, Acominas was 100 percent state -owned.
   For India's fourth integrated plant in Bokaro, th e Soviets came forward
with assistance aft er President Kennedy could not persuade th e US Congress
nor the American steel industry to participate in Indian state ventures. US
Steel had insisted that management of th e plant be entrusted to th em for at
least ten years. This was unacc eptable to the Indian government and India
withdrew its requ est for US aid . 13 Even Mr Tata of TISCO, the private sector
integrated firm, tri ed to convince the US of the inability of th e Indian private
sector to raise the necessary capital. N egotiations were renewed with Britain,
West Germany, Japan, and the Soviet Union with th e expectation that no
single country would be abl e to finance the entire proj ect and, at th e sam e




e i.seo
!    1,000


             1m   1m    1~     1~     1~      1~        1~   1~      1~     1~     1~      1~      1~

Figure 5.2 Brazilian investment in the steel industry, 1972-96
Sou rces: Institute Brasileiro de Siderugia (various years); Instituto Brasileiro de Siderugia, person al


time, that India would not have to depend on anyone country. The Soviet
Union, however, offered to provide financial and technical assistance for the
entire project. In subsequent years India also upgraded its three 1.0 mt plants
and as part of its steel expansion plan added two integrated greenfields: at
Bokaro in the eastern state of Bihar and at Vishakapatnam in the southern
state of Andhra Pradesh.
   The Soviets also participated in the Vishakapatnam (Vizag) plant. It is
India's most modern integrated plant. Of the total project cost of Rs 60,000
million (equivalent to $4,615 million) only 6.5 percent has been provided by
the Soviet Union (personal interview, Rashtriya Ispat Nigam, New Delhi,
July 1987).14 While an Indian consultancy firm has been retained to oversee
the construction of the Vizag plant, reliance on foreign technology and
capital has continued." Up to the steelmaking stage the Soviet Union has
collaborated on the project. Two rolling mills were provided by the former
Czechoslovakia and the third by former West Germany. The collaboration
with the former eastern bloc country has been based purely on financial
conditions. Its financial package is a soft loan carrying an interest rate of 2.5
percent repayable over 20-25 years. It is also payable in Indian rupees
through barter trade. On the other hand, the West German loan carries an
interest rate of 14 percent.
   The reluctance or the inability of domestic private capital to undertake
large-scale, capital-intensive projects meant that the state had to be
involved in a big way. These late industrializing states have also been
interested in promoting capitalist development as a whole. Because the state
owned a substantial part of the industry, it wielded significant clout and
bailed out private firms in distress. Price controls have been extensively used
to regulate the industry. The state has relied on these instruments to support
capital accumulation as a whole. Creating new capacity required strategic
negotiation by the state with foreign suppliers. Brazil and India have been
less successful than Korea in acquiring modern technologies. The inability
to acquire best-practice standards by late industrializers reflects partly the
unwillingness of the suppliers to provide modern technology and partly
state weakness in bargaining effectively with international suppliers.

            Institutional challenges to industrial restructuring
Without a doubt, the states in all three late industrializers overcame the
problem of resource mobilization and technology availability, albeit from
different sources and in different degrees. They successfully added capacity,
contributing to the general shift of productive capacity away from the
advanced capitalist countries. However, the expansion in Brazil and India
has not gone unchallenged. Several problems have subsequently arisen, mainly
in the areas of technological capability and financial performance. States in
these two countries, despite their heavy involvement in the economy and


industry, have been subject to institutional weakness. This was in spite of the
independence of Indian businesses and the state from foreign capital
(Encarnation 1989). This institutional weakness is different from "social
capability," which centers on the development of human capital (see
Abramovitz 1989). Rather, institutional incoherence is a result of the
penetration of political and social forces that effectively undermine the state's
regulatory capacity to organize industrial production. This could be in the
form of political appointments of state sector personnel, often resulting in
the lack of continuity in management. Both Brazil and India have been subject
to such forces and therefore exhibit far greater degree of organizational and
institutional weakness than Korea.
   The Korean government was quite successful in keeping popular forces
at bay. History was on its side as well. Korean state autonomy evolved from
the dissolution of archaic social structures (Hamilton 1986, 1983; Amsden
1989:27-54; Kwon 199D and US geopolitical interest (Haggard 1992).
Relying on state-guided capitalist industrialization (Lim 1985:35), the
military leadership under Park Chung Hee forged new institutional
arrangements between the state and workers. State support of dynamic yet
state-dependent industrial groups and repression of labor were the two
main foundations of capital accumulation. State autonomy was enhanced
by sacking officials and creating a centralized, technocratic Economic
Planning Board (EPB) and nationalizing and reorganizing the banking
sector (Haggard 1992:64-5; Koo and Kirn 1992:125-6). Dissent and
opposition were silenced by both force and rapid growth, making
bureaucratic economic management relatively easy (see Lim 1985:71-2;
Deyo 1987, 1989; Ogle 1990).
   As in the Brazilian and Indian cases, the ideology of industrialization was
grounded in nationalism. However, unlike India, Korea did not shut out foreign
capital, and unlike Brazil it preferred loans over foreign direct investment
(Griffin 1991:122-3). Additionally, the state's access to and extraordinary
control of foreign exchange allowed it to select investment projects and
orchestrate big business expansion. Unlike Korea, where the military state
was insulated from everyday politics, the Brazilian and Indian states have
been captured by capitalists and organized workers alike. While in Brazil
private capital, domestic and foreign, sought to extract state largesse, such as
subsidies, public sector unions in India, with the help of the state, protected
their relatively high-paying jobs. Consequently the performance of the state-
owned sectors in Brazil and India has been less than spectacular, despite
significant capacity additions. How institutional incapacity has technologically
and financially hamstrung the steel industries of Brazil and India is discussed


          The constraints of new technology and institutional
The relatively early entry of Brazil and India understandably resulted in
small plant size, typically under 1 mt. India's three 1.0 mt plants in the
1950s and 1960s were ambitious by most standards. However, blast furnace
innovations by the Japanese had raised the minimum efficient scale
significantly. Related changes in rolling mill technology added further to
overall scale of production. It was not unusual to find integrated plants
ranging from 2 .0 to 10.0 mt annual capacity. Consequently total capital
requirements, as we saw in Table 3.3, also increased dramatically, running
into billions of dollars.
   The evolution of capacity expansion in Brazil and India shows that neither
one has been able to keep up with changing economies of scale. By 1973
Brazil's largest plant was under 2 mt and the average size of three stateowned
integrated mills was 1.37 mt. On the other hand, India's Bhilai plant built by
the Soviets had already reached 2.5 mt by 1967. The average size in the
1970s for the four original state-owned integrated plants was 1.9 mt,
considerably larger than those of Brazil. However, both averages fell
considerably short of the prevailing Japanese average of 7.6 mt (National
Academy of Engineering 1985 :34).
   In the past two and a half decades both Brazil and India increased their
plant size but could not maintain best-practice scale economies. With further
investment, Brazil was closer to attaining economic scales with average plant
size of over 3.5 mt of crude steel capacity. This was attained over several
years in several phases. The Indian average, on the other hand, dropped
drastically for want of investment funds, technical problems with existing
capacity, and the government's bailing out of lISCO, a technologically obsolete
firm. In the mid-1990s India's average plant size, including its most recent
greenfield, stood at 2.56 mt . This average is considerably lower if real
capability is considered. For example, two plants located in the eastern state
of West Bengal, lISCO and Durgapur Steel, have been unable to produce at
their designed capacity. On average they have had a utilization rate of only
47 percent during the 1988-93 period (computed from Steel Authority of
India Limited 1994:21). It is instructive to note that POSCO, Korea's
stateowned firm, began with a 1.03 mt capacity in its first stage construction
of Pohang and attained a size of 5.5 mt by 1978. By 1995 average integrated
plant size stood at 11 .5 mt, exceeding the Japanese average.
   To ex plain divergent capacity expansion and technology development
paths two observations are in order. First, the timing of investments was
critical: by entering the industry early, structural barriers were more
pronounced for India and Brazil. Second, Korea's later entry but rapid
convergence with Japanese standards intuitively alerts us to the importance
of institutional coherence as it was able to establish state-of-the-art plants.


The fact that Korea's technological trajectory was higher than India's or
Brazil's indicates that structural dependence can be overcome. It was only
in the post-1970 period that Korea constructed its two integrated mills.
Therefore it is plausible, assuming similar institutional coherence, that Korea
forged ahead because of timing of investments. With declining demand in
the advanced industrialized countries and technological obsolescence in the
1970s and 1980s in the mature countries, Korea could induce competition
among equipment suppliers and extract state-of-the-art technology at low
cost for its integrated mills. For example, pasco purchased a blast furnace
from Davy McKee, a British firm, at an interest rate of 4 percent below
OECD standards. With increased competition among equipment suppliers,
ironically the sellers have also become dependent on creditworthy buyers."
This ability to bargain with equipment suppliers could not be reproduced
in Brazil and India because of a lack of strategic vision. The institutional
delays in project completion also undermined bargaining effectiveness. Both
countries set up greenfields: CST and Acominas in Brazil, and Vizag in
India in the 1980s, the decade in which pasco's Kwangyang Works was
constructed. Yet a closer examination shows that plants in Brazil and India,
despite their recent vintage, display various symptoms of poor planning. 17
These are in the areas of technology choice, product mix, siting, and
investment costs.
   Comparing costs internationally is difficult. The reluctance of firms to
divulge the actual terms and conditions make the numbers at best reasonable
estimates. Brazil's greenfield CST, with a 3 mt of annual slab capacity (without
continuous casters) has been estimated to cost a massive $3.13 billion, an
average of $1,043/ton (Table 5.3). Of this outlay, 70 percent was for
construction and equipment, while the remaining 30 percent was for site
preparation and interest payments during the construction period." CST's
equipment, up to the hot metal stage, is "world class," with a blast furnace
capacity of 3.285 mt producing a yield rate of about 89 percent (from the
ingot up to the slabbing stage). However, CST did not produce high-grade
products and it was commissioned earlier than Korea's Kwangyang Works.
Yet its investment cost was higher than Korea's Kwangyang Works of $6371
ton, which was less than two-thirds the cost of CST. 19 pasco also claimed
that the second phase of another 2.7 mt capacity cost only $370/ton. Such a
low cost has been attributed to the completion of most of the infrastructure
in the first phase. The average investment per ton for 5,4 mt worked out to
only $480. The total investment was a little more than $2.5 billion.
   Technologically Brazil's CST, Korea's Kwangyang, and India's Vizag plants
share similar characteristics: modern, large-scale blast furnaces, BOFs, and
computerized process controls. However, there are several glaring
shortcomings when CST and Vizag plants are compared to Kwangyang. First,
the investment cost per ton: all the non-Korean plants have a much higher
cost than Kwangyang, with Vizag's cost at $3,000 per ton. Admittedly, there is

Table 5.3 Com parison of int egrated greenfields in Brazi l, Ind ia, and Korea

Plant               Country           Cost/ton         Blast furnace       BOF       CC    Capacity   Location   Main products
                                      ($)              size (."r)

CST                 Brazil            1,043            3,707               2 x 280   No'   3.3        Coastal    Slabs
A~ominas            Brazil            3,050            2,294               2 x 200   No    2.0 b      Inland     Semi -finished
Vizag                India            3,000            3,200               3 x 130   Yes   3.0        Coastal    Long products
Kwangyang            Korea              63r            3,800               2 x 250   Yes   2.7 d      Coastal    Flat products

a   Under construction
b   Rolling mills purchased but not installed
c   Other estimates are $480, $605 , and $ 1,000 per ton (see Table 3.3)
d   First phase only, tot al capacity tod ay is 14 rnt

considerabl e disag ree ment over PO SCO's claims of $637/ton (perso nal
interviews, Ni ppo n Steel Corpo ra tio n, N ippo n Kokan, Jap an Iron and Steel
Federation, Tokyo, October 198 7; SIDERERAS, Brasilia, Decemb er 19 87).
H owever, if we use th e market rate of $1,000 per ton, we still find PO SCO to
be investm ent com petiti ve. Th ough CST's costs are margin ally higher, its
plant and equipment are well below Kwangyan g's technologically. Unlike
Kwan gyan g' s wide ran ge of flat products, CST pro duced semi-finished slabs
for th e expo rt market. Until recentl y, CST has relied on th e tr ad ition al ingot
casting meth od , thereby bypassing investment in expe nsive continuou s casters
and rollinglfinishing mills.
    Second, Acominas is locat ed inland whereas CST is not . Jap an , followed
by Korea, has demon str at ed th e efficacy of tidewat er locat ion s to impo rt
raw materials and ex port finished products. Coas ta l locati on s also have built-
in econo mies of scale as expo rt markets can be potentially tapp ed sho uld th e
need arise. CST was design ed fo r th e ex po rt m arket and Kaw asak i's
participation has had a bearing on its siting. For Acom inas, on th e other
hand, th e nearest port and most major markets are over 400 km away. It
relies on imp orted coke that has to be tr an sported over long distanc es by
rail. 20
    Third, th e product mix of output either deviat ed from actua l market
demand or was simply poorly planned ." All th e non-K or ean greenfields
produce relat ively low value-added products, for example semi-finished slabs,
billets, and long products, such as wire rod s. Wh ile slabs can always be finished
int o high-qu ality flat products, including coat ed sheets, billets and lon g
products are essentia lly destin ed for th e con struction market where qu ality is
not a major requ irement . India's latest integrated greenfield at Vishakapatn am
has been one of th e most ex pensive plants in th e wo rld. Its choice of product
mix (lon g pr oducts) is qu esti on abl e as we ll, give n cheap er alte rnative
techn ologies for such products. Acominas' pro duct mix was designed to meet
th e emerging railway pr oducts market but th e Brazilian Nationa l Railwa y
Proj ect never took off. Thi s is not surprising given th e powerful tr an snat ion al
autom ob ile industry lobby. Th e hu ge investm ent incurred for th e wro ng
products when th ere are far less expensive alternative technologies, such as
DRI/scrap-based processes, reflects th e institutio na l wea kness of th e two
    The ina bility of both th e Indian and Brazilian govern ments to avoi d such
elementa ry yet very costly technical blunders can be attributed to th e lack of
sta te auto no my. Wh erea s PO SCO could bargain hard with for eign suppliers
precisely becau se of its insulati on from politic al and bureaucratic meddling,
Brazil and India were beholden to vario us political forces and regional rivalries.
The inefficiency of th e Indian public secto r steel compan y was partly a result
of bureaucrat ic regul at ion th at undermined coh erent decision-mak ing.
N ume ro us gove rnment age ncies wo rke d at cr oss purposes, slowing th e
investment mom entum and creating a technologically deficient industry. Th e


haphazard manner of technology upgrading is evident from the fact that new
technology such as BOF-CC is adopted for expansion without scrapping
the old technology such as the OHF and ingot casting. The Soviet-assisted
Bhilai plant is a classic example where both old and new technology coexist,
leading to technological fragmentation (see D'Costa 1998a). While such
decisions are based on cost considerations they do not address the
establishment of long-term viability of capital accumulation through
technology-induced productivity increases. As Sengupta (1984:207-8), a long-
time observer of the Indian steel industry commented:
    for any innovation and expansion involving expenditure of more
    than RslOO million [= $7 million] the Public Investment Board
    comprising representatives of Planning Commission, Departments
    of Expenditure, Economic Affairs, Industrial Development, Technical
    Development and the one controlling the industry has to approve
    the proposal after careful examination...and the Bureau of Industrial
    Costs and Prices has been responsible for investment and pricing
    strategies .. . As a consequence profit objective has been relegated to
    the background and the motivation of accumulation of capitalist
    production has been replaced by a variety of vague objectives and
    norms resulting in uncoordinated decisions and inefficiency.. .
Unlike the Brazilian state-owned firm, the Korean state-owned company has
been able to reduce its dependence on foreign capital and enhance its financial
strength. For example, POSCO reduced the foreign loan component from
53-4 percent for Pohang to 29-3 percent for Kwangyang (Pohang Iron and
Steel Company 1987:4). Whereas self-financing was 75 percent for Pohang,
it was 100 percent for Kwangyang, clearly reflecting greater availability of
internal resources (see US International Trade Commission 1988:10-16).
Almost all foreign loans for the Pohang plant have been repaid and only
about 40 percent ($676 million) for Kwangyang remained unpaid in the early
1990s (Pohang Iron and Steel Company 1992:8). POSCO also raised revenues
through stocks. In March 1988 POSCO released more than 25 percent of its
stock that was owned by private banks to the general public. Three months
later they were traded at nearly triple the original value (Metal Bulletin, June
16, 1988:31). The value of the 21 percent of POSCO's 91.8 million shares
was approximately $8.34 billion (W717IUS$). This represented nearly 6
percent of the value of all shares listed on the Seoul Exchange at the time."
While normal profits have been low by private sector standards, POSCO's
offer of stock dividends in lieu of cash dividends was readily accepted (US
International Trade Commission 1988:10-16). Standard & Poor granted
POSCO an A+ credit rating, the highest attained by any South Korean
company or any steelmaker in the world (Busin ess Times 1992:67-8). Raising
loans on the foreign credit market is no longer a problem for the South Korean
steel industry nor is POSCO dependent on the Korean Treasury.


   Unlike th e institutiona l par alysis found in India, th e articulateness of th e
Korean stra tegy speaks vo lumes for institutional ca pacity. POSCO , with th e
help of th e sta te, maint ained an investment momentum and ke pt up with
techn ological change. The Korean com pany found ingenio us metho ds to create
a wo rld -class steel industry. With institution al autono my POSCO could resort
to " delay tactics" to secure best-pract ice technologies (perso na l interview,
POSCO , Poh an g, Oc to ber 1987). O ne delay tactic enta iled a negoti at ing
pro cess whereby PO SCO first progressively stiffened th e term s and condi tions
of purchasing technology to elimina te all but one potential sup plier and th en
negot iat ed a techn ology tr an sfer at favor able prices. Once th e terms were
accepted, th ey were quickly followed up for effective tr ansfer and abso rptio n
of techn ology (Enos and Park 1988:234 ). Th is kind of auto no my was missing
in th e Indian and Brazilian steel companies.

                Institutional capacity and industrial relations
Th e r ec ent gree n fiel ds con structed b y Br a zil a n d Indi a , th ou gh
technologicall y not far behind Kor ea's, suffer from a host of commerc ial
and fin an cial pr obl em s. The expans ion of steel cap acit y in Brazil and India
has been also acco mpa nied by unfettered growth in employment at th e
industr y level. While employment growth is difficult to check under a rapid
inves tme n t pr ogr am, Korea h as n ot succum be d t o the pr essures of
maximizing employment even th ou gh PO SCO 's public secto r sta t us m akes
lab or red undanc y difficult. In contrast, India and Brazil have foll owed a
growth path th at is quite out of line with industr y sta nda rds (Table 5.4 ).
Th e five Indian integr at ed plants with an aggrega te crude steel output of
9-83 mt employed nearly 185,000 employees, comp ared to PO SCO's 23,951
for an output of 20 mt in 1992. India's pr ivat e integr at ed firm, TI Se O , was

Table 5.4 Em ployment in th e steel industry

                                              1988-9                           1994-5
  5 plants (excluding Vizag)                   219,997                         183,459
  Vizag                                                                         16,656"
  TISeO                                         41,422                          44,736
  lISCO                                         38,032                          18,833
Brazil                                         167,414 (1989)                   77,547 (1996)
South Korea b                                   62,128                          72,099 (1993)
  POSCO                                         22,621 (1989)                   20,397 (1995)
Sources: Korea Iron and Steel Assoc iation; POSCO; Stee l Aut hority of Indi a Ltd ; In sti tu te
Bras ileiro de Side rurgia, var ious years
a Includes operations, tow nship, and captive mines
b Iro n and stee l ind ustri es


marginally better than the state sector, with 43,324 workers producing 2.5
mt of crude steel. This average of 57 tons per worker per year is close to
SAIL's 53 tons per worker per year. The 1992 average per employee output
for the Brazilian steel industry was 218 tons per year compared to Korea's
420 tons per year (Korea Iron and Steel Association, Steel Statistical
Yearbook, 1995; Institute Brasileiro de Siderurgia 1997). Japanese output
per employee was 602 tons of crude steel for 1995, reflecting greater
automation and more efficient operations.
   The large discrepancy in employment between India and the others, and
by implication in productivity, can be explained by both technological and
institutional factors. We have already examined the barriers associated with
structural dependence and the challenges emanating from institutional
weakness. Indian restructuring has been particularly hard hit by this weakness,
compounded by the demands of public sector steel workers in alliance with
various political parties. Unions are able neither to aggregate their collective
interest nor, given their veto power, to allow the state enterprise to make
decisions that are relatively independent of political interference. This difficulty
was elaborated by one SAIL member of personnel department staff:

    The labor laws are on the "concurrent" list at the central and state
    governments . The laws are formulated by the former and
    implemented by the latter. For a particular law the enforcement
    machinery differs from state to state. Durgapur is in a state that is
    very pro-labor [Marxist ruled] and therefore the management must
    make concessions to labor. There are three major unions in Durgapur,
    while lISCO [in the same state] has five. The Trade Union Act permits
    union formation with a minimum of seven members. With one union,
    as in the case of Bhilai, it is much easier to negotiate. It is not the
    demands of labor as a whole that is problematic but rather agitation
    created by strong unions in specific shops which tend to be very
    localized. Aside from flexing their muscles in that shop there is a
    great deal of union rivalry. Furthermore, union leadership is led by
    persons who do not have any connection with the steel industry but
    rather belong to major political parties at the state or national level.

The over-politicization of industrial relations, particularly by external agents,
has led to severe overstaffing on the one hand and labor strife, albeit
declining, on the other in many state-owned steel plants. Two of them in
the state of West Bengal employed nearly 50,000 employees with a total
output of less than 1.5 mt per annum, and average output in 1992-3 of less
than 50 tons per employee a year (Steel Authority of India Limited 1994).
This is about 6 percent of POSCO's 835 tons per employee output in 1992
(Pohang Iron and Steel Company 1996). Differences in the vintages of capital
equipment, capital intensity of the production process, and the degree of


subcontracting have a bearing on such productivity differentials. Both of
these plants in the state of West Bengal are labor-intensive and employed
obsolete plant and equipment. However, politicization also has been
rampant, accounting for nearly 100 percent of all the major steel industry-
related industrial disruptions in India in the late 1960s and early 1970s
(Krishna Moorthy 1984:336) .13
    Lately, industrial relations have been on the mend but excess manpower
has been a heavy institutional legacy in India (see Rudolph and Rudolph
1987:260-2). A "sons of the soil" policy by which local residents are
employed with the gradual absorption of contract (construction) labor as
permanent employees has added to the payroll without contributing to
productivity." For example, Vizag, India's most recent greenfield, which
boasts state-of-the-art technology, was compelled by local political groups
to hire a large number of the local population displaced by the plant. Nearly
25 percent of them were illiterate (Venkata Ratnam et al. 1995:269). As
project delays mounted, nearly 13,000 individuals claimed to be displaced.
Vizag already employs 15,000 workers, with an average output per employee
of 200 tons a year. Although this is nearly two to four times the average of
older integrated plants, both state and private, it is about a fourth of
POSCO's average.
    The Indian private sector integrated company, TISeO, did not escape this
"compassionate" hiring practice found in the Indian state sector and often
fuelled by populist politics. At the time of its 1980s modernization program,
it recruited 2,000 local unskilled and unemployed workers. Such a practice
by the private sector firm may have been motivated by less capital-intensive
technology, cheap labor, and a sheltered market. In the Indian case it is clear
that lack of state autonomy in the context of patronage politics has generated
high levels of steel industry employment but has contributed little to
technological or commercial strengths (see Sengupta 1984:213).
    Brazil also suffers from institutional deficiencies, albeit on a lesser scale
than India. The presence of foreign capital and their local partners within
the framework of a corporatist regime (see Wesson and Fleischer 1983:56;
Bordin 1986) has limited the capacity of the Brazilian state to empower
state-owned firms to maintain commercial viability. On the one hand, labor
has been repressed under military regimes and, on the other, been pampered
into participating in the corporatist arrangement." Thus the favored unions
in the industrial sector, particularly those under the public sector, have
benefited from this relationship. Generating employment and maintaining
high wages in the public sector as state objectives have subsequently
followed, creating institutional impediments to technology-based
restructuring. Even as early as 1967, when the First National Steel Plan
was being formulated, the Special Advisory Group on the Steel Industry
reported that there was surplus manpower in the industry (Dahlman
1978:78). High levels of employment have continued in the state-owned


steel plants. In 1990, the five state-owned integrated plants had an
employment level of 59,635 (World Bank 1992:86) and total crude steel
output of 15.81 mt in 1991 (Institute Brasileiro de Siderurgia 1996:1/7).
Output per employee was approximately 265 tons per year or 32 percent
of POSCO's output per employee.
   In the late 1980s the Brazilian state steel industry apparently employed 40
percent more labor than it actually required (personal interview, SIDERBRAS,
Brasilia, December 1987). To be more competitive industry officials at
Acominas opined that manpower should be reduced by 10 percent (personal
interview, Acominas, Belo Horizonte). In individual plants, such as Acominas,
industry officials suggested that as much as 30 percent of non-production
staff of 2,000 was excess manpower (personal interview, Acominas, Belo
Horizonte, December 1987). But at the same time state managers pointed
out that retrenching labor was counter to the "social" objective of maintaining
employment. This implied a low diffusion rate of automation on the one
hand and reduced autonomy of the state enterprise in expanding best-practice
technologies on the other.
   Korea's POSCO faced a very different industrial relations system. The
state established the Federation of Korean Trade Unions (FKTU) to consolidate
all unions under a single agency and most unions were co-opted (Deyo
1987:185).26 Labor-management councils were set up at the behest of
company management under the state dominated Korean industrial relations
(see 1m 1992). Strikes were banned, particularly in public sector firms. In
1987 national labor laws permitted union formation. But they neither
undermined the FKTU nor eliminated the consent of the Ministry of Labor
for forming unions. Evidence of an anti-labor stance persisted even as Korea
in 1991 became a member of the Geneva-based International Labour
   Until 1988, POSCO's employees were non-unionized. All grievances were
handled by labor-management councils that met once a month. POSCO's
management has been insulated from the government, thus enabling POSCO
to arbitrate labor disputes effectively. In August 1987 when most of Korea's
heavy industrial workers went on strike demanding higher wages, POSCO's
employees were conspicuously absent (Business Korea, May 1987:11-12;
personal interview, POSCO, Pohang, October 1987). The demands ofPOSCO
labor, despite widespread strikes in other related sectors, were contained by a
number of strategies. First, POSCO wages have been maintained at twice the
manufacturing average and employment is life-time. POSCO employees also
get excellent non-pecuniary benefits, such as housing and children's schooling.
Second, as a significant portion of the work is contracted out (Amsden
1989:209) and POSCO jobs are coveted, wage demands are stabilized through
higher wages for regular workers. The threat of further subcontracting
dampens many labor demands. Workers themselves are quite conservative,
especially older ones. Third, POSCO management has distributed about 10


percent of its stock to its employees. These strategies, in conjunction with a
highly regimented workforce, have made POSCO strike-free and highly
competitive. Its employees log an average of over 55 hours per week, higher
than most other Korean industries (personal interview, POSCO, Pohang,
October 1987).27 Absenteeism is very low and paid leave extremely limited
(Amsden 1989:212). With recent democratization of Korean politics (see Hart-
Landsberg 1993:279), independent unionization in POSCO did not catch on
(Innace and Dress 1992:176). Formed in 1988 POSCO's union lasted just
three years, indicating the weight of "patriarchal company welfarism" (Hoon
and Park n.d.: 5) in stifling collective dissent.

                         Delays, debts, and deficits
Inexperience with large-scale projects can understandably lead to delays, cost
overruns, and losses. But, as we have seen, even after overcoming structural
dependence, institutional weakness has been a continuing feature in Brazil
and India. Korea on the other hand avoided most of these difficulties. In
contrast to Brazil and India, where project delays and cost overruns were
common, POSCO contained construction costs by completing projects on
time. Modern facilities notwithstanding, several greenfield projects in India
and Brazil have been white elephants. For example, the costs incurred for
Acominas and Vizag were too high relative to international norms and did
not justify the scale, location, or product mix . With respect to the industry as
a whole, while Korea narrowed the technological gap with Japan, several
Indian plants became technologically obsolete. It is evident that even as the
state coordinated investments and expanded steelmaking capacity it was beset
with institutional incapacity. "
    Compared to Brazil, the Korean experience has been different. For example,
POSCO secured cheap supplier credits with 5-7 percent interest and 10-20-
year repayment periods (Paine Webber 1985:1-9). Low wage rates for
construction, round-the-clock construction work, and timely completion of
projects contributed to POSCO's lower costs, especially by reducing the
interest burden. In contrast, the Brazilian authorities have not been very
effective in negotiating with foreign suppliers. Stringent financial terms and
the general delays in project implementation raised costs significantly." Further
refinancing was needed that carried even stiffer conditions (CST 1985:15). 30
Cost overruns were higher in the case of Acominas, Brazil's newest greenfield
plant. Most of the equipment was obtained from Europe, mainly Britain and
France. Commissioning the plant took nearly a decade and Phase I remained
incomplete as late as 1988. Millions of dollars of rolling mill equipment lay
idle at the plant site for several years. Shortage of funds and conflicts over
siting nearly doubled the original estimates. In 1978 the estimated cost was
$2.7 billion. By the time the plant was completed in the early 1980s the total
cost was over $6 billion. Its interest payment alone was $2.246 billion


(Acominas 1986), an amount exceeding POSCO's first stage investment for
    Institutional weakness has also meant financial dependence on international
firms and negative return on investment. For example, CST relied on routine
supplier credits (or tied loans) to finance equipment imports. But in exchange
SIDERBRAS, the state holding company, permitted foreign equity. Part of
the agreement also included supplying a fixed amount of slabs from CST to
be sold to Kawasaki and Finsider, its foreign partners. These commercial
arrangements, while providing a captive market and a source for foreign
exchange earnings, were not necessarily the best option for CST. For example,
in the first half of 1988 CST's average slab export price was about $l92/ton
while the domestic price was $223 (calculated from Metal Bulletin July 21,
   While export markets bouyed capacity utilization and generated foreign
exchange reserves, lower export prices translated into significant losses for
the firm and mounting debts as well. In 1987, SIDERBRAS, the state-owned
holding company had over $17 billion in loans. Its profitability from 1979 to
1985, measured in terms of net profits as a percentage of sales, has been
consistently negative. The highest loss was negative 75 percent in 1985
(SIDERBRAS 1987:38). The Restructuring Plan of the SIDERBRAS System
stated that:

    The margin between cost and revenues gradually narrowed,
    practically eliminating the companies' ability to generate funds
    internally. In some cases, these margins became strongly negative.
    The cumulative effect of domestic controls of flat steel prices
    resulted in a revenue loss of about US$5.5 billion during October
    1978-December 1986. This figure rises to US$8.2 billion when
    additional financial costs absorbed by the companies to cover the
    losses with outside financing are considered.
                                                  (SIDERBRAS 1987:8)

Thus the burden of accumulated losses and interest payments on foreign
debt worsened on account of administered prices at home and competitive
prices in the world market. The state-owned enterprise was caught between
government-supported low prices and insufficient investment resources. The
National Treasury was not supportive in raising new loans, instead
SIDERBRAS had to rely on other sources for investment. Nearly 91 percent
of SIDERBRAS' resources were from third parties and only 9 percent was its
own capital (personal interview, SIDERBRAS, Brasilia, December 1987).
Under such a cash crunch the company was forced to seek the conversion of
its $11 billion debt to government equity.
    Nor has the Indian steel industry been immune from financial
hemorrhaging. Various construction delays-over three years for the


German-assisted Rourkela plant-and cost overruns have been typical.
Investment cost for Rourkela, estimated in 1955, increased by over 80
percent by 1963. At the end of 1982-3, with delays in project execution, the
expansion cost for Bhilai for an additional 1.5 mt increased by nearly 200
percent within eight years (Krishna Moorthy 1984:107). Although the foreign
exchange component declined to 11 percent, the additional expansion was
again under open hearth process, a technology that was already obsolete.
The Soviet-assisted Bokaro plant also suffered delays and cost increases and,
despite easy credit terms from the Soviet Union, could secure neither large
BOFs nor any continuous casters." After years of indecision, the Vizag plant
was finally completed at double the investment norm. The feasibility report
for Vizag was prepared in 1971 and the Detailed Project Report in 1977, but
actual construction did not begin until the mid-1980s. The 3.0 million ton
expansion stage of the Vizag plant was completed in the mid-1990s. Its product
mix of low-value billets, bars, structurals, and wire rods is, commercially
speaking, quite inappropriate for a capital-intensive integrated process. It is
apparent that the project was hastily conceived, despite years of bureaucratic
wrangling. The plant was already beset with problems even before it was
commissioned as noted by an official representing the project:

    Only on hindsight I can say that we could have done better. For
    rolling mills we should have explored more countries. We gave too
    little time for potential suppliers to come to a decision. For a project
    of Rs 3,000-4,000 million at least Rs5 million must be spent on
    project reports supplementing any serious offer.
             (Personal interview, Rashtriya Ispat Nigam, New Delhi, July

Like SIDERBRAS, the Indian state-holding company, SAIL, suffered from
poor project management and commercial planning. SAIL has been profitable,
as measured by net profit (after depreciation and interest but before taxes).
However, its accumulated end-of-year balance, including adjustments made
for dissolved companies, has been consistently negative during the 1972-86
period (Steel Authority ofIndia Limited 1987a: 25). Between 1982 and 1984
the company racked up net losses of over Rs 3 billion . SAIL's internal resource
position has been precarious. The problem has been exacerbated as
government commitment for steel investments has been waning. " In the
seventh Five-year Plan (1985-90), only 1.84 percent of the total plan outlay
was devoted to steel (Pingle 1996:229), representing only 25 percent of
estimated required funds (personal interview, SAIL, New Delhi, July 1987).
A price hike was the only way in which SAIL could redress its financial
predicament (personal interview, Joint Plant Committee, New Delhi, July
1987), undermining the very mechanism by which state-led capital
accumulation was to take place.


    In contrast, th e Korean steel com pany had an annual average of W 233.85
bill ion (nearly $3 00 mill ion ) net earni ngs after taxes during th e decad e
beginning in 19 86. PO SCO's return on assets, th ough low, has been positive,
reflecting, on th e one hand, modern plant and equipment and, on th e other,
maintenanc e of lower pric es for th e larger accumulatio n process. Its int ernal
resources ha ve been large eno ugh to maintain a fairly high rat e of investment .
From 1992 to 19 96 , PO SCO invested a tot al of $10.69 billion (at W8001 $),
or an annua l avera ge of $2. 13 billion (perso nal communication , PO SCO ,
Decemb er 199 7). In th e same period, th e Korean indu str y as a who le invested
tw ice as much as PO SCO.

           Technology diffusion and capability in Brazil, India,
                               and Korea
Aside fr om institution al imp ediments th at del ay pr oject plannin g and
executio n, low capacity ut ilizat ion also hamper s th e learning pr ocess.
H owever, technical difficulties arising fr om th e ada pta tio n of fo re ign
technologies to local condition s can be a source for technological cap abil ity.
With accumulated indu strial expe rience techn ology diffu sion can be ex pected
to speed up. Whil e th e rate of investment can be th e basis for learning, learn ing
also dep ends on cap acity ut ilizati on (see Ram amurti 198 7 ). Dem and
determines th e rate of util izat ion of plant and equipment. Plants designed
with large econo mies of scale impl y long production runs and hence grea ter
susceptibility to utilizati on rates. To maintain high rates of utilizati on Brazilian
and Korean plants have tap ped dom estic and expo rt markets. Consequently
th eir util izat ion rat es have been high, despite th e cyclical nature of th e steel
indu stry. In most years Brazil had over 90 percent utilization rate, while Korea's
PO SCO had close to or over 100 percent (Paine Webb er 1987: tabl e 17;
Innace and Dr ess 1992:250 ). Indi a's utili zat ion rat es have been mu ch lower,
anyw here from under 40 percent in th e case of lISCO to over 90 percent in
th e Bokaro plant.
    Ind ia's capacity util izat ion ha s been low mainl y due to deterior at ion of
plant and equipment. Slackening dem and had occas iona l effect as wel l.
Capacity util izat ion for Rourkela from 1959-60 to 196 7-8 average d only 67
percent. Lat er, lISCO and Durgapur faced severe pro blems. Th eir combined
cap acity ut ilizat ion from 1974-5 to 1992-93 averaged 60 percent (Steel
Authority of Ind ia Limited, Statistics 1994 ). Th e sta te-owned Bhilai plant
has con sistentl y ma int ained high util izat ion rat es, whereas th e public secto r
as a who le and th e sta te-ow ned Durgapur plant have faced con siderabl e
difficulti es (Figure 5.3) . Indi a's actual production ha s sha rply deviated from
th e rat ed cap acit y. Whereas th e Detailed Proj ect Report cap acit y refers to th e
installed cap acity, as sta ted in th e project report it is often an engineering
artifact. Th e age of th ese plants, inadequ at e technological upgrad ing, th eir
relianc e on poor-quality raw materials, and inadequ at e maint enance have



                                                                          .-.. _. _.. -. --' .. ..
                                                                 ......                              <.

           . .... - ....

   40                                                               - - - - - Public sector
                                                                    ••••• TlSCO
                                                                    - - Bhilai
   20                                                               - - . Durgapur

Figure 5.3 Capacity utilization in India
Sou rces: Krishn a Moor th y (198 4); Steel Auth ority of India Ltd , Stat istics fo r Iron and Steel
Industry in India (various years)
No te: Bhilai and Dur gapur repr esent India' s two widely var ying performers. TISCO is a privat e
comp an y

rendered th em incapable of ach ieving a high utilization of designed capacity.
Thus th e rat ed capacity for Durgapur, Rourkela, and lISCO is questionable.
Based on actual production, Durgapur's capacity prior to modernization was
less than 0.75 mt, for Rourkela 1.41 mt, and for lISCO, a mere 0.37 mt (Steel
Authority of India Limited 1994).
    Not dogged by th e institutional incapacity of th e Indian state-owned
indu stry, th e privat e steel firm TISCO performed much better commerci ally.
Technologically, however, it faced similar problems of plant and equipment
ob solescenc e, excess employment, and low productivity. Its commerci al
successes rested on its managerial autonomy but also on its participation in
th e state -led price cartel in a she lte re d domestic m arket . It too fac ed
technological fr agmentation, with several small, ageing bla st furn aces, and a
steel meltin g shop using ob solete OHFs and more recent BOFs. After recent
moderni zation and up grading of faciliti es both ingot castin g and continuous
castin g coex ist. Th ou gh th e plant ha s avera ged a high capacity utiliz ati on of
over 97 percent (Steel Authority of Indi a Limit ed 1994:28 ) and high profits
(Krishn a M oorthy 1984:172), its lab or productivity is very low compared to
th e Brazilian and Kor ean averages. In 1992-3 its output per employee wa s
only 65 ton s per year.
    Th e inability of Indian int egrat ed plants to obtain m aximum output
from pl ant and equipme nt, am ong other things, is also dependent on


peri odic investment in m od ernizat ion . In th e Indian case in vestm ent in th e
steel industry has been quite erra tic. For th e fir st three Five-year Plans
(195 1-66) investment funds allo ca te d to th e public secto r steel pla nts
increased dr am atically (Steel Author ity of India Limited 1987b: 14 3; see
also Tabl e 5.2 ). But fr om th e fourth FYP onward th e imp ortanc e of th e
steel secto r con sistently dimin ished. In th e seventh FYP (1985-90) th e
sha re of t ot al gove rn me nt outlays for th e steel secto r was a mer e 1. 8
percent and 3.5 perc ent of tot al plan outlays and t ot al public secto r outlays
resp ectively. M o st of th ese expen d it ures h ave been directed t ow ard
cap acity ex pansion; only a bo ut 5 perc ent has been spent on updat ing
technology (Steel Autho rity of In dia Limited 19 87b : 144 ).
    Techn ological cap ab ility is also influenced by th e diffu sion of mo dern
technology. Under chan ging technology, th e faster th e rat e of ado ption th e
grea ter is th e possibility for learning. Korea, for exa mple, rap idly ado pted
large blast furnaces and opted for BOFs and continuou s castin g (Table 5.5 ).
In contrast, partly becau se of earlier entry and partly becau se of institution al
incap acit y, India was saddled with sma ller blast furn aces, obso lete Bessemer
and open hearth furnaces, and lagged significantly behind Korea and Brazil
in continuou s castin g. Exp an sion and moderni zati on of plants took place in
fits and sta rts, with unremarkable industria l perform ance. For example, lISCO ,
esta blished in 1939 , used th e Dupl ex-Bessemer and OH process. Until 1965-6
capacity utilizat ion average d 90 percent ; recentl y it has been hoverin g aro und

Table 5.5 Diffusion of modem techn ology: basic oxygen furnace (BOF)aand continuo us
casting" (%)

              1960        1965       1970        1975       1980        1985       1990        1995

US              3.7       19.4       55.8        74.3        83.9        89.0       94.3       100.0
                                      (3.7)      (9 .1)     (20.3)      (44 .4)    (67 .1)     (91.0)
Japan         14.9        69 .0      95 .0       98.7       100.0       100.0      100.0       100.0
                                      (5.6)     (31.1)      (59 .5)     (91.1)     (93 .9)     (95.8)
Brazil        13.3        30.9       4 5.9       58.3        87.7        95.2       97.1       100.0'
                                     (0.8)       (5.7)      (33.4)      (43.7)     (58.5)      (71.6)
India                     11.1d      11.4        18.8        30.5        44 .6      57.0        66.1
S. Korea                                         93.5'        98.4      100.0      100.0       100.0
                                                (19.7)       (32.4)     (63 .3)    (96.1)      (98.2)

Sou rces: Lucke (19 93); Int ern a tion al Iron and Steel Insti tu te (1996); In sti tu te Bt asil eiro
de Siderurgia (19 97)
a BOF share as percent age of no n-electr ic furn ace steelmak ing
b Cont inuous casting shares in pa rent hesis
c BOF share nearly 100% and CC figure for 1996
d Figure for 196 8
e Integrated prod uction in Korea began in 1973
- Not a pp lica ble


40 percent of th e origina l. Although th e Bessmer converters were ph ased out
in 198 8, th er eb y m or e th an doubling capac ity util ization , th e plant is
technologically obso lete. Plan s to moderni ze it have rem ained on th e book s
for severa l years.
    An internati on al compari son of diffu sion of modern techn ology, such as
th e BOF and CC, reveals th at amo ng th e three lat e industria lizing countries
Korea' s rat e of diffu sion has been th e fastest. By 19 75, over 93 percent of
Korea's integrated output as a share of non-electr ic furn ace output was und er
th e BOF, compared to Brazil' s 58 percent and India's 19 percent. Since th en
Brazil has closed th e ga p with Korea , while India still lags beh ind . In 1995 ,
both Brazil and Korea had 100 percent int egrat ed output und er th e BOF
compar ed to India 's 66 perc ent. In continuou s casting, Kor ea mat ched
Japanese sta nda rds by 1990 with a 96 percent rati o, while Indi a had a paltry
22 percent. Brazil narrowed th e CC gap in th e 1990 s to nearly 72 percent in
1996 . Indi a still lagged behind with only 34 percent.
    The inabil ity to keep up with mod ern technologies was also compounded
by learning diff iculties (see D' Cost a 1998a ). Th e ado ptio n of diff erent
processes from diverse sources, varying plant size, and institut ional bottlenecks
made buildin g techn ological cap ability a challenging task. For exa mple, th e
Rourkela bla st furn aces took five years to reach th e rated cap acit y (Krishna
M oorthy 1984:92-4 ), whereas PO SCO's first blast furnace took less th an
tw o years . Th e frequ ent cha nges in techn ical par am eters of th e equipment
supplied by different foreign compani es (particularly by th e Soviet Union for
three of th e five state-ow ned integrat ed plants) result ed in fra gment at ion due
to varying vintages of capital equipment th at belon ged to different proc esses
being of different sizes, and from different suppl iers.34 Th e gra dua l learning-
by-d oing by Indi an firm s acco mplishe d in th e last three dec ad es was
con siderably reversed (D' Me llo 1986:182 ). PO SCO 's techn ology strategy has
been quite different. It sourced similar types of equipment from th e same
supplier. Thus Davy McK ee supplied PO SCO with nearl y all its identical
blast furn aces. Th e second ph ase expansion of Kw an gyan g was a virtual
repr oduction of Ph ase I. It cut down on site prepar at ion and eliminat ed any
pot enti al new problem s th at could have arisen with different plant and
equipment. Ca pa city ex pansio n based on duplicating modern facil ities and
repeating imp orts of similar equipment thu s placed Kor ea's learning on a
higher level (Figure 5.4) .35 As can be seen from th e figur e, th e successive
installation of similar-sized blast furn aces exhibits increasingly shorter learning
cycles. For exa mple, th e second BF took two months to reach a 1,500 ton s/
day/m' tap pin g rati o compared to th e third BF, which reached nearl y 2,000
ton s in th e same period.
    Techn ological capabil ity is also demon str at ed by th e extent of capacity
" stretching," th at is, pr oducing out put that exceeds designed cap ac ity
(Da hlma n and Westphal 1982 ). M astering techn ology, improving ope ra ting
proc edures, and reducing costs allow ed both Brazil and Korea to exhibit



~                                                                                --- -------
l:    1.5                                                     ---
g                                                     --- ---
s                                                                          .., ..     .. .....................

                                                                 .. .. ..,
~                                                                                 '

                                                           .., ...
l:                                                                       '
-c,                                                                  '           • • • •• Japan Group

~                                    ..... -------------
                ""'..   -.... -..... -
                        ",                                                       --·1stBF
                                                                                 ----- 2ndBF
                                                                                 - - 3rdBF

            Bumingin                                  2                      3               4               5
                                                    Months in operation

Figure 5.4 POSCO's learning curves for                     blast furnace (BF) operation
Sourc e: POSCO (company documents )
1 Japan Group denotes the learning curve based on the initial offer made by the Jap ane se
2 Tapping ratio is the output per day per rn'

various degrees of capacity stretc hing (Enos and Park 1988:190-207). Among
the three integ ra ted plan ts in Brazi l, USIMINAS was the most successfu l in
stretching capacity and attaining the best productivity rates. In 1977 its output
per emp loyee per year of 261 tons exceeded US productivity of 255 (Dahlman
1978:6). Similarly, in th e early 1980s, Pohang's fou rt h phase expansion
entailed capacity stretching by 0.6 mt beyond the designed capacity of 3 mt.
In the fina l phase of Kwangyang expansion, POSCO was ab le to add an
additional 1.0 mt. POSCO's overa ll "incremental" output stood at over 2 mt
(plant visit, Poh ang, August 1995). This output did not require majo r spending
on capita l equipment. Instead, sma ll steps, such as decreasing tap-to-tap time
from four minu tes to one minu te in steelmaking shops, reducing ladle thickness
to increase the size of the cha rge, and increasing the number of wo rking
days, were behind this incr emental change.
   Techno logical capability is also enhanced by backward integra tion whereby
local firms become important supp liers to the industry (see Taniura 1986 ). In
the early stages of lat e industria lization it is difficu lt to increase local conten t.
All three governments in the 196 0s and 1970s established capita l goods
producing firms in the public and pr ivat e secto rs. In India th e H eavy
Enginee ring Co rporation (HEC), an East Bloc-aided project, was set up with


the sole objective of supplying steel equipment. However, with continued
imports of most steelmaking equipment, HEC's technological capability was
limited. With poor sales, HEC's worsening financial situation was exacerbated
by its already weak technological foundation, undermining the very objective
for which the government had set up the corporation.
   For financial reasons, perfectly capable domestic firms are also unable
to compete with foreign suppliers (personal interview, Acorninas, Belo
Horizonte, December 1987). In the mid-1980s when Acorninas, Brazil's
newest greenfield was constructed, the Brazilian state-owned equipment
producer, USIMEC, was helplessly sidelined for want of long-term financing.
An Acorninas official, lamenting the contemporary form of structural
dependence, remarked:

    About 60 percent of USIMEC's capacity is idle. There are no orders
    for equipment. It is because financing projects by USIMEC is difficult.
    England gave us a long time for repayment of loans for the blast
    furnace, probably because Davy McKee's orders were small and they
    had to secure markets. The problem is conditions imposed on loans.
    The loans we get are supplier credits [that is, tied loans]. So we have
    to purchase equipment from the firms of those countries whose
    governments and banks are involved. New technology and money
    are related and it is very difficult for the developing countries to
    obtain them.
       (Personal interview, Acominas, Belo Horizonte, December 1987)

The National Bank for Economic and Social Development (formerly BNDE,
without the S), relying on the treasury and public pension funds to make its
loans, has a special Agency for Industrial Finance (FINAME) to provide
low-cost finance to source domestically produced steel machinery. But the
Brazilian steel industry had to rely on foreign sources for most of its financial
and equipment requirement. As a result, weak linkages with domestic
technology suppliers undermined rapid development of technological
capability. Brazil has the technical skills for capital goods production but,
like India, its learning process has been stunted because of external financing
of plant and equipment. Brazil's local content ratio for engineering is very
high for the production of steelmaking equipment but very weak in the
finishing equipment area. Of the thirty-five areas under five categories of
finishing, Brazil has engineering capability in only six (de Oliveira 1989;
Guerra et al. 1989:57).
   Korea, on the other hand, was able to increase its local content rapidly.
For its Pohang Works, Stage I entailed over 119,000 foreign engineer hours;
by Stage III this was reduced to 491, and by Stage IV, to zero. Value of local
content was 12.5 percent in Stage I, rising to 35 percent in Stage IV (Kang
1994:182). Virtually all areas of planning, construction, and engineering could


now be done by Koreans (see Amsden 1989:309). For Kwangyang, local
participation was high. Fifteen firms representing 50 percent of plant and
equipment were involved (Pohang Iron and Steel Company 1987:2). To ensure
local technological capability for the future, POSCO insisted that foreign
firms affiliate with domestic ones.
   At the plant level, POSCO took several steps to ensure technological
learning and high capacity utilization. Enos and Park (1988:183-207)
documented several cases of improvements in imported equipment design
and operating procedures in POSCO's plants. Several innovations on the
shop-floor were introduced. Two schemes introduced in POSCO's plants that
contributed to learning were "zero defects" and "improvement proposal."
The former ensured strict quality control while the latter sought employee
suggestions to enhance operating efficiency. Both schemes resulted in
significant cost savings and productivity increases, ultimately allowing the
assimilation of imported technology (see also Amsden 1990:26-7). In-house
training and overseas education in both technical and non-technical areas
was provided for a vast number of POSCO's employees (Kang 1994:181).
During the 1970s and up to the mid-1980s, POSCO sent about 1,900
employees overseas for training (Paine Webber 1987:1-3), with emphasis on
general rather than specific training (Amsden 1989:210-11).36
   In the 1990s, the Indian steel industry, confronted with the prospects of
increased foreign competition, introduced a major suggestions scheme
(Venkata Ratnam et at. 1995:271-80). By creating a multiskilled workforce,
the Indian steel industry has been trying to restructure on the lines of the
Korean one (see Venkata Ratnam 1995). In 1992-3, the number of
suggestions increased by twenty times, resulting in savings of Rs 1,300
million. The Indian steel industry has extended its training programs to
cover more employees. From 1988-9 to 1992-3, the number of trainees
more than doubled, while the number sent abroad almost tripled, from 282
to 757 (Sengupta 1995:78).
   However, India's technological problems remain. While POSCO has been
able to rely on its customers to improve products, by an extensive feedback
system (plant visits, Pohang Coated Steel Co. and Pohang Steel Industry Co.,
Pohang, August 1995), the Indian state-owned firm is unable to crack the
domestic market in the face of rising competition. For example, Union Steel,
using POSCO's hot rolled coil produces galvanized sheets, which are then
used by Samsung Electronic Company for refrigerators. By using the product
and providing feedback, POSCO has been able to make better hot rolled
coils. In the Indian case, the successful Maruti-Suzuki automobile joint
venture between the government and Suzuki Motors of Japan does not source
steel for auto panels from Indian plants. Instead, all pressed steel has been
supplied by Japan (personal interview, Maruti Udyog, Gurgaon and New
Delhi, July 1987, July 1991). The fact that a state-owned domestic steel
industry is unable to produce the quality of steel required by a state-owned


auto firm reflects not only an institutional weakness but highlights the state
of technology in existing plants."
    The emphasis on technological capability is further revealed by POSCO's
investments in R&D. In 1977, W1.13 billion was spent on R&D, representing
7.3 percent of POSCO's profits (Enos and Park 1988:210). In 1983 the
corresponding figures were W9.78 billion and 12.5 percent or roughly $12
million. Though far short of the Japanese norm of around 2.5 percent of
total sales, POSCO in the 1990s has doubled its spending from 1 to 2 percent
of sales. This norm far exceeds India's share of under 0.5 percent (Sengupta
1995:80).38For Korea, the immediate impact of R&D has been a decline in
royalty payments. In the case of Pohang, royalty payments for construction
and operating technology declined by 6.5 percent, 17.2 percent, and 100
percent in the second, third, and fourth stages of construction (Enos and
Park 1988:189). These reductions are remarkable considering that each phase
involved increasing size and complexity of hardware.
    To add more muscle to its technological capability, POSCO established
the Pohang Institute of Science and Technology (POSTECH), patterned loosely
after the Massachusetts Institute of Technology and the California Institute
of Technology. It includes all engineering and instrumentation fields relevant
to iron-and steelmaking (plant visit, Pohang, October 1987; POSTECH
Prospectus, 1991-2; POSTECH visit, Pohang, August 1995). In 1987 the
Research Institute of Industrial Science and Technology (RIST) was established
to develop new technologies. PO STECH and RIST train technical graduates
and act as a source of innovation for Korean industry as a whole. POSTECH
can be seen as providing a collective good as its training of high-skilled labor
benefits other related industries." In 1994 and 1995 POSCO also founded
two overseas research centers: POSCO Tokyo Research Laboratories and
POSCO Research Center Europe in Dusseldorf, Germany. They have been
established to conduct research in core technologies as well as to source
technical information.
    The cycle of technological capability is complete when the technology
importer ultimately becomes a technology exporter. In this regard South Korea
is still weak in design capability (see Chudnovsky et at. 1983; Chudnovsky
1986; Griffin 1991). However, as a result of its emphasis on technological
learning and its success in mastering the engineering processes, POSCO has
made some forays into technology supplies. Training of Taiwanese personnel
from China Steel, installing a computerized system in Indonesia, and setting
up a joint venture with US Steel in California (see Chapter 6) are examples of
reverse flow of technology from POSCO (D'Costa 1993). Foreign technology
manufacturers are also engaged in the production of steel hardware using
Korean skilled workers and local equipment suppliers. Several Korean firms
are subcontracted to design steel equipment, such as continuous casters, on
behalf of foreign firms.


             Conclusion: institutional capacity and industrial
In examining state-led industrialization, we find that in Brazil and India there
have been institutional impediments to technological dynamism. While both
countries have been successful in establishing and expanding steelmaking
capacity, thus contributing to the general shift in global production capacity,
they have not been able to match Korea's investment momentum .
Technologically their industries have not been as robust as Korea's. Although
early entry to the steel industry may have contributed to the retarded
development of the industry, the problems with more recent steel projects in
both Brazil and India indicate otherwise. The timing of investments was
important for Korea only to the extent that the Korean state had such an
opportunity. But exploiting windows of opportunity in its external
environment, such as the competitive technology market, was clearly a product
of strategic intervention. The autonomy of the state, which was also extended
to POSCO, definitely played a role in capturing the benefits of changing
technologies. All three countries had some variant of industrial policy but
only Korea could use it to build a technologically superior industry. Brazil
and India did not have the institutional capacity to invest in modern
technology. An overtly bureaucratic approach to industrial governance and
populist policies, such as employment creation, limited the development of
the Brazilian and Indian state-owned steel industries.
   State ownership guaranteed capacity build-up in all three countries but
ensured rapid industrial change only in Korea because of its ability to maintain
an investment momentum and thereby continuously take advantage of new
innovations. The effective utilization of imported technologies contributed
to local technological capability. However, the state, in attempting to foster
capitalist development, could not act like a capitalist. Prices had to be kept
low to develop downstream activities. Capitalist regulation required state
initiative to develop an industry that would provide a key industrial input at
controlled prices . The problem with this approach for capitalist development
has been the inability of state-owned firms to generate internal resources and
secure modern technologies on a continuing basis. India fared the worst
because of the heaviness of the state sector. Low administered prices effectively
subsidized a bloated public sector, serving private capital less than the
downstream industries under government tutelage. Heavy losses of the state-
owned public sector reduced internal savings and thus reduced investments
in the industry. Technological obsolescence in India has been rampant and
only recently has the government announced investments in the sector. The
uneven adoption of innovations created a technological gap even among the
three industrializing countries.
   The implications of the uneven diffusion of technology are many. For this
study four points are worth noting. First, different technological trajectories


ari se principally becau se of strategic choic e and institutional capability. Th e
US, Jap an, and Kor ea can be seen as dict ating th e dir ecti on of industri al
chan ge-the US and more recentl y Jap an toward reducing capacity and
reor ganizing th e rest in various ways, Korea and pr eviou sly Japan by adding
technolo gically superior steelmaking capacity at a rapid rat e. Both Brazil
and India attempted to tr an sform th e industr y with limited success. Second,
stra tegic choic e and institutional cap ab ility are interd ependent. Without a
coherent institutional arrangement such as state aut onomy the Indian indu stry
could not formulate a technology stra tegy, let alone keep abreast of recent
innovati on s. Third, past strategies and institution al impedim ent s could induce
new institutional arran gement s, such as a grea ter sta te role in th e US wh en
fallin g behind techn ologically, or an increased role for th e private secto r in
Brazil and Indi a as th ey too find it cha lleng ing to keep up with inn ovat ion s.
Finally, both inn ovat ive beha vior and institutional cap abil ity are necessar y
to orga nize capitalist pro duction. One without th e other is likely to diffuse
technology unevenly, leading to chang ing competitiveness and th e globa l
reorgani zati on of steelma king cap acit y.



The US is the world's largest steel market but is no longer the largest producer,'
It also is no longer insulated from foreign competition. The US industry's
strategy toward new innovations and the rapid adoption of modern
technologies by Japan and other late industrializing countries cumulatively
produced a realignment of global steelmaking capacity. This shift in the
international division of labor, already underway with capacity expansion,
was also accompanied by changes in institutional arrangements. As we have
seen, the US industry moved away from self-regulation to increased
government protection from imports. Late industrializing states relied on
capitalist regulation which eschewed market mechanisms for industrial
development. With mounting restructuring pressures, the US industry in league
with foreign firms established joint ventures in the US, while late industrializers
like Brazil and India shifted away from state-led industrialization to greater
private enterprise involvement in the industry.
   The different technological trajectories in the US, Japan, and other late
industrializing countries led to varying competitive strengths of national
industries. They also gave rise to new industrial governance structures for
undertaking capitalist production. Japan and Korea, with newer plant and
equipment, became internationally competitive, capturing a sizable share of
the US market. This was reflected in the magnitude and changing composition
of US steel imports as well as steel exports by the new globally oriented
producers. Import penetration was a concrete outcome of long-term
investment in technology by both Japan and Korea. As they emerged as major
suppliers of high-quality flat products, the US industry with major capacity
reductions and slower investment experienced shortages of the same products.
The industry sought to resolve the supply problem by establishing joint
ventures and securing foreign capital and technology.
   In this chapter we capture some of the nuances of the changing international
division of labor and institutional arrangements by linking past technology
strategy to international competitiveness. The countries which were successful


in adopting modern technology quickly, such as Jap an and Kor ea, ha ve been
cost competitive as well. Given the absolut e mark et size, we center our anal ysis
on th e US, illustrating how low er cost of production allowed for eign firm s to
penetrate th e US market and take ad vantage of th e supply gap s creat ed by
poor siting of plants. For eign firm s also esta blished joint ventures with US
firm s to fill th e supply gaps, th ereby int ernationalizing th e American steel
industr y in a new way. Brazil and India, states with limited institutional
capacity and huge financial liabilities, ha ve had to introduce swee ping
institutional reforms, such as privatization.?
    The chapter is divided into three main sections. Th e first examines th e
changing int ern ational division of labor as ob served from th e quantitative
increase in US imports, th e chan ging str ucture of US imp orts, and for eign
competition in regional markets in th e US. Th e second section demonstrates
th e imp ortance of cost of production and productivity to changing division
of labor. It shows that firm s th at have invested in new innovations and ha ve
enjoyed low wa ge costs tend to be int ernationally competiti ve. Firms that
invest heavily in new technology also ha ve higher productivity. Th e final
section pr esents th e accompanying changes in th e global realignm ent of th e
indu stry. The new intern ationalization of the indu stry is discussed with respect
to gre ater participation of for eign firms in th e US steel industr y, Asia' s
emergence as a new global cent er of production, and th e privati zation of th e
Brazilian and Indian industri es.

          US imports and th e changing international division of
Unt il 1959 US exports exceeded imports. Since th en th e US bal ance of tr ade
in steel has been negati ve. Fr om a mere 1.3 mt of steel imp orts in 1956, tot al
imports jumped to 4.4 mt in 1959, to 10.4 in 1965, to a high of 26 mt in
1984. In 1995, 21. 3 percent of apparent con sumption wa s met by imp orts
(Americ an Iron and Steel Institute 1995).3 As we ha ve seen in Chapter 3
(Figur e 3.4), th e imp ort tr end was clear: a grea ter sha re of US con sumption
wa s being met by imports. Equ ally important, th ere has been a qu alitative
chan ge in th e composition of US imp orts. Thi s is a cumulati ve outcome of
th e int eraction between two different technological trajectories: th e slow
diffu sion of modern techn olo gy in th e US industr y and th e rapid ado ption of
large-scale, integrated production units in lat e industri alizing countries such
as Japan and Korea.

                 The changing composition of us imports
As US firm s shie d away from investing in lar ge-scale mod ern mill s and
ph ased out numerous integr at ed mill s as a response to ob solet e excess
cap acit y, sho rtages of basic steel item s emerged. Clos ure of hot-end faciliti es


in th e US, such as coke ovens and bla st furnaces, led to short ages of sla bs
and hot-rolled coil. Slab s ar e semi -finishe d products that ar e furth er
processed into hot-and cold-rolled coil s, mo st of which are converted to
high-quality galva nized or color-coated sheets . Th e US sho rtage created
opportunities for countries such as Brazil , which had in vested heavily in
slab producing plants, such as CST. Th e European Uni on, saddled with
excess capacity, ex ploite d th e US market condition by ex porting hi gh
volumes of semi-finishe d products. On th e other hand, Jap an and Kor ea
focu sed on high value-added hot-and cold-rolled and galvanized shee ts,
used in automotive and appliance industries, which command high pric es.
Given th e importance of th ese sectors to th e US economy it wa s inevit abl e
that an y supply shortf all had to be overcome through imports. Th e US
indu str y wa s not contemplating an y major investm ent pro gram imm ediately.
Th e grow ing imp ortance of ingots and shee ts is also reflected in th e over all
import str uct ure of th e US (Tabl e 6.1 ).
    The chan ging composition of US imp orts is a reflection of th e changing
international division of labor. In 19 78 less th an 0.5 mt (or und er 2 percent
of total imports) of semi-finished products wa s imported into the US (American
Iron and Steel Institute 198 7:46). In 1995 over 5 mt , constituting over 21
percent of total imp orts, con sisted of semi-fini shed products. Th e collap se of
th e oil and shipbuilding industri es reduc ed US demand for pipe, tubing, and
plates, wh ile th e gro wth of Japanese aut o tr an splants and th e quality
con sciousness of American producers induc ed greater demand for high-quality
flat pr oducts such as galvanized and coated sheets. Th ere ha s been a decline
in th e import volume of galvanized sheets, for example from 2.31 mt in 198 7
to 1.26 mt in 1995. H owever, thi s is not a reflection of falling demand. Rather,
th e decline in imports is due to incr ea sed domestic sourcing as a response to
rising imp orts.

                  The structure and source of us imports
Th e investm ent and con sequ ently th e technology stra tegy of US firms led
to a particular division of labor among ex porters. This is evident from th e
pattern and sour ce of US imp orts. For exa mple, in th e 1960s and through
th e 19 70 s, over three-quarters of US import need s initiall y were met by
Western Eur op e and Japan (Tabl e 6.1 ). In th e 1980s, th ese expo rters were
join ed by Kor ea and Brazil. Together th eir combined contribution wa s
roughl y 70 percent of US imp orts. In th e 1990s both Japan and Kor ea
reduced th eir dependenc e on th e US market while new suppliers such as
Ru ssia and Ukraine also entered th e fra y.Jap anese and Korean expo rt sha res
fell partly because of grow ing domestic dem and, stra teg ic diver sification of
market s toward dynamic Asia , increased su p plies fr om Europ e, and
(discu ssed in th e last section) increa sed domestic supplies du e to for eign
investm ents in US steel facilities.

Table 6.1 T he cha ngi ng internationa l division of lab or : US import structure (%) a

              1987                                             1990                                                 1995

              Ingots   HRC      CRC       Galv.      Total     Ingots    HRC       CRC       Galv.        Total     Ingots   HRC     CRC     Galv.    Total

Total (rnt)    (2.28) (2.52) (2.25) (2.31) (20.41)  (2.36) (2.28) (2.05) (1.26) (17.17)  (5.20) (3.21) (3.10) (1.26) (24.41)
              100.0   100.0  100.0  100.0  100.0   100.0   100.0  100.0  100.0  100.0   100.0   100.0  100.0  100.0  100.0
Brazil         20.81      -      -      -    5.40   34.42    4.85   6.70     -    8.57   25.04      -      -      -    8.72
ED             43.48   38.31  36.32  18.77  28.42   36.94   35.45  40.09  16.37  31.77   20.10   27.77  33.69  33.16  24.37 b
Total             -    20.93  36.97  54.23  32.66      -    35.80  34.85  52.41  28.15    8.98   33.80  24.36  10.98  19.32
Japan             -    11.43      23.34     47. 16    21.17        -       9.31      25.33        42.22    18.14      8.04    6.85   18.96     3.59    10.13
Korea             -     7.58      11.16      6.91      6.35        -      26.48       6.17         7.45     7.7 3       -    26.48       -      -       5.74

Source : Ame rica n Ir on a nd Steel Inst itute, Annual Stat ist ical Rep ort, vari ou s yea rs
No tes
a Includes total steel mill prod ucts and excludes othe r iron and steel products and ferro alloys
b Russia's 1995 exp orts included ingots and semi-finished products such as slabs
Hlc Ceh ot -rolled coils; CRC =cold-rolled co ils; Galv.e galvani zed sheets; "Ingo ts" includes semi-finished products, such as slabs
-=negli gi ble.

   The European Community as a group remained the largest exporter,
supplying the bulk of semi-finished as well as flat products. However, Brazil's
share of semi-finished items varied between a fifth and a quarter in 1987
and 1995 respectively. In 1990 it peaked at 34 percent. In contrast to Brazil,
Japan and Korea became major suppliers of semi-processed and finished
flat products, such as hot-rolled and cold-rolled coils and galvanized sheets.
Among Asian exporters, Japan specialized in high-value galvanized and
coated sheets. Its exports as a share of total US imports of galvanized sheets
often exceeded 40 percent. Korea's exports to the US were slightly less than
Brazil's. However, unlike Brazil, Korea focused on high-value products. In
1995, of the 1.4 mt of steel products exported by Korea, over 66 percent
was in sheets and strips.
   The availability of imports almost without exception was guaranteed.
The large domestic US market became a dumping ground for the huge West
European surplus capacity, estimated at 50 mt in 1981 (Howell et al.
1988:55-7). It was also an attractive market for Japan, Korea, and Brazil.
With modern mills, both Japan and Korea also attempted to maintain high
capacity utilization. The expansion of their steel industry was driven by
domestic demand but at the margin export markets became critical,
especially for Japan when its capacity expansion of the 1960s and 1970s
exceeded the absorptive capacity of its economy." Korea followed the
Japanese strategy of meeting growing domestic demand and exporting the
balance. Japan and Korea, with their newer and better production facilities,
could meet the US demand for high-quality steel products. On the other
hand, Brazilian exports were driven more by foreign debts than by external
demand per se. Brazil's economic crisis, institutional incapacity, such as
project delays, and government policies that dictated low domestic prices
contributed to the industry's poor performance. For Brazilian producers
exports provided higher revenues than domestic sales (personal interview,
SIDERBRAS, Brasilia, December 1987).5
   Japan and Korea captured export markets by rapidly assimilating and
diffusing new innovations to enhance their international competitiveness. By
the late 1950s, Japanese production costs in major products, such as hot-
and cold-rolled sheets and plates, fell and converged with US costs and within
a decade were less than 75 percent of US costs (Crandall 1981:171-2). Japan's
absolute lower labor costs and lower material costs were added advantages.
Higher productivity and declining raw material prices, partly a result of a
long-term strategy to secure stable supplies, lower transportation costs, and
better technology contributed to Japanese competitiveness. In the 1960s
Japanese share of material costs per ton to its total costs was roughly the
same as in the US, declining considerably thereafter (computed from Crandall


                 Import penetration on the US west coast
Rapid output expansion in Japan and Korea and their proximity to the US
west coast market added a regional dimension to the US import structure.
Japan and Korea strategically directed their exports to the underserved west
coast markets in the US. With only about 3 percent total national steel capacity,
the western states were easy targets for exporters. Besides, consumption in
the western states was on the rise. Supply gaps in the western region arose for
a number of reasons-idiosyncratic as well as strategic. As we saw in Chapter
3, the war-related steel capacity that was installed in the western region was
unsuitable for post-war demand needs. Supplies from the east coast and the
southern region were not price competitive. When all plans for constructing
greenfield plants on the west coast were shelved, the region provided an easy
export outlet for East Asian producers.
    Between 1983 and 1988 the average consumption in the western states
was 10 percent higher than in 1970,6while the corresponding national figure
had dropped by almost 34 percent (USInternational Trade Commission 1989a:
4-1). California accounted for approximately 75 percent of the western states'
demand (Warren 1988:275).7With changes in bulk transportation and with
the coastal siting of plants, Japan, South Korea, and Brazil found it profitable
to import low-cost raw materials at world prices from far-flung sources and
export finished products to distant markets.
    From 1959 to 1970 Japan's share of imports in this region increased from
39 percent to 83 percent. In 1970 Japan supplied 21 percent of the west coast
market (Hogan 1971:1471). The continental size of the US made shipping
costs from one coast to another higher than those between East Asia and the
west coast of the US. Shipping costs from the east coast to the west coast
ranged between $35 and $70lton (US International Trade Commission 1989b:
3-41). In contrast, the average shipping costlton for various exporting
countries was between $35 and $391ton (US International Trade Commissions
1989b: 3-47). In 1986 both Korea and Japan shipped 47 percent of their US
exports to the west coast, with the average shipping cost varying between 7
and 8 percent of total costs. Brazil, for obvious locational reasons, shipped a
large fraction of its products to the east coast of the US, with shipping costs
averaging 6 percent of total costs.
   Some of the import needs of the US are met by Canada. In contrast to
East Asian exports, Canadian exports make their way into the Great Lakes
region. Canadian firms exported as a countercyclical strategy. The addition
of new capacity during economic slowdowns created the burden of excess
capacity (Barnett and Schorsch 1983:225), making nearby US markets
natural targets. There are several interrelated reasons for this outcome.
First, four major steel plants are sited in Ontario, with three in the southern
part of the province, making US markets in the Great Lakes area easily
accessible. Second, the proximity of the US market has allowed Canadian


producer s to tr eat non-US market s as less important. Third, a significant
portion of Cana dian output is destin ed for th e automobile secto r in Canada
and th e US. Canadian ste el ex ports to th e US are often processed further in
th e US, re-exported back to Ca nada, and finally ex po rte d out of Can ada to
th e US (M asi 1991 :194-5 ). Fourth, th e decline in th e Canadia n dollar an d
relatively low lab or co st s in Ca n a d a m ak e Cana dia n stee l pr oducts
competitive in the US market . Fifth, th e lib eral trad e relations between th e
US and Ca na da facilitat es inter-r egion al tr ad e th at reinforces Ca n ada's
competitive ad vantage vis-a-vis th e US.

                 Cost of production and labor productivity
Among other things, technology influ enc es co st competitiveness in th e lon g
term, which in turn genera tes pric e competition in th e market. However, in
th e sh ort term, prices ar e al so influenced by cap acity utilization. Low
utilizati on, either becau se of obsolescence or becau se of limited markets, keeps
costs up. Firms ha ve tri ed to maintain high utili zation so as to cover th eir
opera ting costs. Where excess capacity ha s been rampant, prices have often
been propped up by various govern ment measur es. M emb ers of th e European
Econ om ic Comm unity aver aged less than 75 perc ent utiliz ati on rate during
th e 1980-93 period (Pain e Webb er 1994:98 ) with onl y mar gin ally better
performanc e by Japan . However, while European countries were strugg ling
with ob solete excess cap acit y, Jap an wa s seeking out foreign market s with
low-cost output. Similarly, Kor ea wa s able to take ad vantage of its low er
cost of production (Table 6.2 ). Korea' s utiliz ation rate wa s above 90 percent
and often exceeded 100 percent.
    In addition to the locational disad vantages faced by US firm s, the American
steel industr y also suffered from high costs for vario us reason s. Hi gher lab or
costs as well as material co sts contributed to declining US competitiveness.
Risin g w age rates, es pecially in the ste el secto r, combined w ith lower
international prices of raw mat erials contributed to high er relative co sts. In
th e 19 70s nearl y 40 percent of US operating cost was lab or cost, whereas
Japan's labor co sts rem ain ed under 15 percent. Kor ea's labor cost w as even
lower-between 5 and 6 percent. Ind ia 's lab or share wa s higher th an Japan's,
even though Jap an' s wa ge rate wa s severa l tim es that of India's. The share of
mat erial co sts w as roughl y similar in all th e five countries, despit e lower
energy co sts in th e US an d or e co sts in Indi a and Brazil. Of th e five, India
exhibits a higher material cost per ton.
    India's cost disadvantage has been acute. In 1988 its cost per ton wa s $703
or 1.68 tim es th at of Korea's $4 19 (Sengupta 1994:42 ). Brazil's cost in that
year was close to Kor ea' s. On a trend basis, Japan's cost reduction achievements
ar e es pecia lly n otew orthy. Sin ce 1980 J apan ha s reduced it s domest ic
co st from an ind ex of 100 to 76 (Seng upta 1994:56 ), w hile Korea' s co st s
have been ri sin g (see Table 6.2 ) (Park an d Casta ne da 19 87 ). This is lar gely

Table 6.2 Average cost per ton of prodiaction (US$)

                 us          Japan          Brazil    India      Korea        Wor/d  4

1975             259.8        220.4           409.3   207.4      162.7       252.7
1976             260.3        241.0           465.8   220.2      150.7       250.4
1977             296.4        285.7           364.1   250.1      194.2       289.0
1978             312.7        357.4           423.4   277.4      243.5       326.7
1979             367.3        331.9           468.5   356.3      212.5       361.0
1980             442.1        415.1           410.6   375.0      264.0       427.2
1981             431.3        425.0           488.2   424.1      259.6       414.6
1982             591.4        407.7           561.6   468.1      254.7       444.2
1983             465.9        397.9           383.4   503.1      249.2       400.7
1984             470.8        369.9           501.8   487.1      237.6       378.0
1985             457.7        413.3           473.0   504.4      234.9       384.6
1986             440.6        527.8           339.6   523.7      248.3       430.1
1987             413.0        534.3           574.3   552.8      301.5       444.3
1988             419.4        588.2           745.8   579.4      337.2       490.2
1989             441.4        554.8         1,133.5   580.4      406.4       497.3
1990             433.7        575.9                              414.8       505.8

Sou rce:   Paine Webber in Kang (1994)
a Average of 61 major steel mills of the world
-=not available

becau se of domestic inflation that wa s fueled in part by rising wa ge costs and
not productivity declin es. Cost esca lation in India ha s been ph enomenal,
incr easing nearly fourfold for th e state-sector plants and over fivefold for th e
pri vat e sector TISCO . However, TISCO's level of costs in dollar terms ha s
been lower th an SAIL's, ranging from 71 percent to 94 percent of SAIL's.
While India's dollar co sts per ton have been lower than th e US and Japan for
fourteen an d ten years respecti vely during th e 1973-92 period, lower co sts
were not du e to productivit y gr owth but rather th e devalu ati on of th e Indian
rupee. Between 1973 and 1992 th e Indian rupee fell by over 290 percent.
M or eover, th ese costs do not account for quality differences: Indian steel is
considered to be inferior to for eign steel.
    N otw ithst an ding th e difficulties in comp aring co st s among differ ent
countries on th e ba sis of a sing le currenc y, th e differences in production costs
ha ve resulted from pa st investm ent strategy. Assuming that newer plant and
equipment em bodies progressive innovations, th en, all other things remaining
constant, Japanese and Korean plants ar e likely to ha ve high er productivity,
in terms of both labor and material inputs per un it of output. Thu s th eir
higher financial burden, 15-18 percent for Japan and 10-28 percent for Korea,
has been more th an offset by lower labor and materi al costs. Korea' s financial
burden would ha ve been higher had it not been for th e early completi on of
plant construction (Pohang Iron and Steel Com pany 198 7:5-6; 1992:6).
H owever, India's lower financial burden, given its older plants, was not


compen sat ed for by lower wage rates or lower raw material pric es. In th e
1980s, India's overall production costs incr eased rapidly as several plants
became technologically ob solete and suffered from institutional con straints.
It is evident that shifting costs ha ve been influ enced by the adoption of modern
technology and its effective utilization. With significant institutional capacity,
Japan an d Korea transformed their raw m at eri al disadvantage into an
opportunity for creating a competiti ve industr y.
    Th ere ha ve been other factors that have influ enced th e mo vement s in costs
and th erefore pric es. In 1964 th e Jap an ese wa ge rat e in th e industr y wa s onl y
21 perc ent of th e US rate and by 1987, despit e th e stee p climb in th e va lue of
the Japanese yen, it remained under 75 percent (Barnett and Schorsch 198 3:64;
per sonal communication, Japan Iron and Ste el Fed eration, July 1988 ).
However, after 1985 Japanese co sts in US doll ar terms soared du e to yen
appreciation. Until th en Japanese co sts had been competitive, despit e rising
energy costs. US production co sts also increased aft er th e 1982 recession ,
probably becau se of write-offs. However, with capacity adjustments and
rounding out imb alanc es in plant and equipme nt, US co sts fell back to
competitive levels.
    Of the three developing economies, onl y Korea has sustaine d low co sts.
India's earl ier competitiveness w as ero ded w ith technological ob solescenc e
wh ile Brazil has remained a high-co st producer mainly becau se of its financial
burden . In th e 1980s, Brazil's financial co sts per ton exceede d $100, th e
bulk of which w as for interest pa yments. Korea' s high fin ancial burden du e
to its new er plants was more th an offset by its lower wage co sts, in th e
5-7 perc ent ran ge of total co sts or roughl y a qu arter to a third of India's
and Brazil's w age sha re . Wa ge costs ha ve been high in India and Brazil
becau se of poor labor productivity, featherb edding, and limited automation.
However, Korea's wa ges have been ri sing rapidly for the p ast decade and a
half. A recent estimate put Korea's labor sh are at 18 .3 perc ent compared to
Jap an 's 26 .8 perc ent (Kor ea Development Bank 1997:44 ).8 Cree ping wa ge
disadvantage h as not hurt its co st compet iti ven ess yet. In 1996 Korea's
co st for a ton of cold-rolled shee t wa s less than Japan' s by a solid $13 5,
almo st a 22 perc ent differ enc e.
    Costs ar e influenc ed by labor productivity. The progressive increases in
th e capital int en sity of steel technology implies th at wa ge sha re in the un it
co st of output will be low. Thus older, less autom at ed mill s ar e lik ely to
require greate r labor input th an newer plants. However, thi s outcome is
significantly depend ent on labor productivity, requiring a consciou s strategy
to increa se throughput and/or reduc e labor inputs. The Kor ean steel indu str y
ha s exh ibite d r apid increases in labor productivit y, which is a further
testimony to technological learning. Between 19 73 and 1986, worker-hours
per ton of steel decr ea sed from 14 .0 7 to 7.4, an improvement of over 90
perc ent (Paine Webber 198 7: table 17). This compar es fa vorably to Japan' s
decr ea se fr om 10 .72 to 6.0 3 w orker-hours (an improvement of 44 perc ent ),


and a US decr ea se from 10 .88 to 6.4 worker-hours (an improvement of 41
perc ent ). More recent figur es put POS CO's labor productivit y at slightly
more th an three worker-hours per ton (Pohang Iron and Steel Company
1996:36) . It is th erefore not sur prising, given Kor ea's technological strength
and its institutional capability, that Kor ea has been abl e to contain costs
despite rapid increases in wages.

                  Global realignments in the steel industry

                The internationalization of the US industry
Since th e lat e 19 70 s US firm s ha ve faced incr eased competiti on from foreign
producers. American firm s shut down several mills, diversified into non-steel
acti vities, and partially moderniz ed some faciliti es. As we have seen, such
piecemeal modernization led to serious equipment imb alanc es in many US
integrated plant s, making the US indu stry as a wh ole technologically deficient .
With limit ed participation in greenfield proj ects, Americ an firm s had lost
th eir technological edge. Low profitability ero ded R&D efforts. In 19 84 th e
industr y spent $3 90 million on R&D , approximately 0.6 percent of sales,
wh ereas th e manufacturing average wa s 2.6 percent (US Congress 198 7:31 ).
Japanese R&D ex penditures have been 1.5 percent of sales, a far greater
ab solute outlay as its production exceeded th at of th e US by 21. 7 mt (Japan
Iron and Steel Federation 198 7:18,29) . In 1988 th e gap in R&D ex penditure
between the US and Japan widened even furth er: 0.6 percent versus 2.9 percent
(US Int ernational Trade Commission 1990:55 ). Even Kor ea spent a larger
fraction of its sales on R&D th an did th e US in th at year," In 1995, PO SCO
reinvested 2 percent of its sales in R&D, which amounted to over $200 million
(Poh an g Iron and Steel Co mpany 1996:29 ).
    As th e US industr y reorganiz ed itself, it was left with reduc ed production
capability in certain steel products, such as semi-finished slabs, hot-and cold-
roll ed coil s, and high value-added galvanized sheets. To compete more
effectively and regain control of th e dom estic market, American firm s sought
fin anci al as well as technological inputs from th e very firm s th at had
imp osed competiti ve pressur es. Th e partnership s were opportune . Th e US
had th e market whil e th e for eign producers had th e know-how, material
inputs, and cash reserves. Th e Japanese also had a lar ger stra tegy for th e US
market . In th e 19 70s and 1980s, th e US govern ment tri ed to limit imports of
steel products through th e Trigger Price M echan ism and Voluntar y Restraint
Agreements (see Cha pter 3), forcin g for eign suppliers to ex port higher-valu e
items to th e US.
    Jap an and lat er Kor ea had already found a regional market nich e in th e
und erserved west coast. Th e appreciation of th e yen as well as import quotas
compelled Japanese ex porters of automobiles to mo ve auto production to
th e US. Co nsequently, th e demand for high-qualit y coat ed sheets in th e


American market increased. As American auto firms themselves demanded
better quality steel and US firms lacked the technological expertise, it made
perfect sense for American steel firms to collaborate with Japanese and other
producers. The partnership was not in steelmaking but rather for finishing
steel, sourced either domestically or internationally. The competitiveness of
Japan, Korea, and Brazil in various flat products, such as semi-finished slabs,
hot and cold coils, and coated sheets, and their eagerness to capture or maintain
their US market shares, generated a new division of labor within the US.
Certain semi-finished hot-end products, such as slabs and hot-rolled coils
were imported and joint ventures with foreign producers were established to
process these products into coated sheets (Table 6.3 ).10
   Joint ventures have been institutional arrangements aimed at injecting
critical technologies and capital for plant modernization and expansion
(Florida and Kenney 1992). The bulk of the projects were in finishing, that is
either in cold rolling mills or in galvanizing lines. Foreign ownership of these
ventures varied from a low of 14 percent in the case of Nippon Steel's stake
in Inland Steel to 100 percent in the case of Nisshin's stake in Wheeling-
Pittsburgh. In two large projects, belonging to National Steel and Armco, the
average cost of revamping basic steelmaking processes was nearly $2 billion.
The joint venture between Nippon Kokan of Japan and National Steel provides
a good example of how older steelmaking facilities can be modernized with
the addition of continuous casters, galvanizing lines, and various
improvements in blast furnaces and rolling mills, among others (Mangum et
al. 1996:79-82).
    Through these arrangements National Steel shifted its output from semi-
processed hot-and cold-rolled coils to high-quality galvanized sheets. Nearly
a third of its output was destined for the US-based auto industry, both
American and Japanese companies (personal interviews, Japan Iron and Steel
Federation, Nippon Kokan, Tokyo, December 1991).11 These joint ventures
added over 7 mt of galvanized capacity, which represented nearly 40 percent
of capacity (Hall 1997:201). Most of the joint ventures supplied to the auto
industry. For example, US Steel's 1992 joint venture with Japan's Kobe Steel
was reportedly set in motion by Toyota and Honda of America (US
International Trade Commission 1990:32). Similarly, Armco's venture with
Kawasaki and Inland's with Nippon Steel were designed to supply high-quality
coated sheets for the auto market. Notwithstanding the new demand from
Japanese auto transplants in the US, these joint ventures also benefited from
the general increase in the demand for galvanized products.
    Strategic collaborations in the American steel industry also resulted from
idiosyncratic factors. The positioning of foreign firms on the US west coast is
illustrative (Figure 6.1). Two joint ventures-between Kawasaki of Japan
and CVRD of Brazil and between US Steel and pasco of Korea-indicate
an on-going international and regional division, of labor. Kawasaki already
has a joint venture with Armco. It also has an equity stake, along with Finsider

Table 6.3 Principal foregin joint ventures in the US integrated steel segm ent

US firm                         Foreign partner                Operation               Start-up         Employment        Investment       Foreign
                                                                                                                          ($ million)      eqpity (%)

National"                       NKK (Japan)                    Basic                   1984b             12,000           2,200              70
CSI                             Kawasaki (Japan)               Rolling                 1984b                725             275              50
                                CVRD (Brazil)
UPI (USS)                       pasco (Korea)                  Cold rolling            1986                 990             437              50
LSE I (LTV)                     Sumiromo (Japan)               Galvanizing             1991                 100             180              50
Wheeling-Nisshin*"              Nis shin (Japan)               Basic & coating         1988               5,500              15              10
Wheeling-Nisshin*               Nis shin (Japan)               Galvaniz ing            1988                 100              96              67
Inland"                         Nippon Steel (Japan)           Basic                   1989              11,500             186              14
USS-Kobe"                       Kobe (Japan)                   Basic & pipe            1989               3,000             300              50
Armco"                          Kawasaki (Japan)               Basic                   1989               9,500           1,600              45
l iN Tek (Inland)               Nippon Steel (Japan)           Cold rolling            1990                 280             520              40
IIN Kote (Inland)               Nippon Steel (Japan)           Galvanizing             1991                 250             550              50
Armco                           Kawasaki (Japan)               Galvanizing             1991                 100             150              50
LS II (LTV)                     Sumiromo (J apan)              Galvanizing             1991                 100             180              50
Protec Coating (USS)            Kobe (Japan)                   Galvaniz ing            1992                 100             200              50
Wheeling- Nis shin *            Nis shin (J apan)              Galvanizing             1993                 100             120             100e

Sources: Ma ngu m et at. (1996:68 -9); Keidanren (1996:86); per sonal interviews, Jap a n Ir on and Steel Federation , Ni ppon Ko kan , Tokyo, Octob er
1987, Novem ber 1991
No tes
US firm s in par enth eses
,e US firm in Wheeling -Pitts burgh
a Int egrat ed operat ions
b Takeover
c O nly technical co lla bo ra tio n

                                                         Steel coils
       KmserSteel      Renamed to
      BOF (hot-end                                                       sold by US Steel

        , - - - - - - 1 Steel Industries                                                US Steel
                             (cold-end start-up)



                                                                                    Hot-rolled coils



Figure 6.1 The changing division of labor on the US west coast
Note: Th ere is no hot-end (steelmaking) proc ess left on the west coast

of Ital y and CVRD, in Brazil' s maj or slab producing Tub ar ao Works. Th e
stra tegy of Kawasaki and Finsider was to source slabs fro m Brazil for th eir
hom e plants. H owever, as overcapa city plagued th e industry in th e 1980 s,
new slab markets had to be creat ed. A perfect oppo rtunity arose when Kaiser
Steel's integrated Fontan a Works in Ca lifornia, despite modern izat ion , could
not survive th e competition . As Kaiser was ind ebted to CVRD for sourcing
iro n pellets from Brazil, th e timing could not have been bett er for a joint
venture. Design ed to util ize sur plus sla bs fr om Brazil, all steel ma ki ng
equipment, such as cok e ovens and BOFs, were sold or scra pped. Kawasak i
and CVRD purchased th e plant and renam ed it Ca liforn ia Steel Industr ies.
Roughly 60 percent of its slab input which is finished int o cold-rolled and
galvanized sheets is from Brazil.
    Th e second joint venture on th e west coast has been between US Steel
and PO SCO of Kor ea. US Steel had rolling mill s in Pittsburg, Ca lifornia. It
also ow ne d th e Geneva plant in Ut ah , one of th e wa r-rela ted gove rn ment -
built inl and mill s. Both facilities over tim e becam e technologically obso lete.
Geneva supplied steel coils to Pitt sburg t o be proc essed for th e canning
industr y. Geneva was a low-c ost pr oducer but its qu ality was qu esti on abl e.
Besides, Geneva was con str ained by plastic substitu tes and envi ro nmenta l
regul ati on s. O nly lar ge-scale modernizat ion could mak e th e unit profitabl e.
H owever, spending $1.5 billion to revamp th e plant was too daunting even
for US Steel , given th at far superior pr oducts were alrea dy being supplied
by Eas t Asian pr oducer s in th e west coast m arket. The cost of tr an sporting


hot-rolled bands from Utah to Pittsburg was also prohibitive. Just prior to
the shutdown of the Geneva Works, US Steel negotiated with pasco for
the supply of hot bands (a semi-finished product) from Korea for the
Pittsburg Works in California, effectively replacing the Geneva plant.
pasco and US Steel have each contributed $150 million to get the ageing
Pittsburg plant operating again. By 1988, all integrated capacity on the
west coast had ceased to exist. The region's finishing mills increasingly
relied on imported semi-processed steel, produced by the foreign partners
of US-based joint ventures.
   The changes in the division of labor within the US reflects a long-term
restructuring process, involving American and foreign firms. It is evident
that problems of technological obsolescence, overcapacity, and strategic
investment decisions have in one way or another influenced the restructuring
processes. What is not so evident is that joint ventures allowed American
firms to bypass the massive outlays necessary for the hot-end of steel
production and instead sourced semi-finished steel from Korea and Brazil.
Unable to mobilize investment capital from domestic sources, American
producers technologically and financially relied on Japanese, Korean, and
Brazilian firms. Foreign capital in the US steel industry presents a new form
of industrial governance: strategic collaboration between domestic private
firms and state-owned or state-inspired foreign ones. It is also noteworthy
that the restructuring process has imposed a division of labor in which capital-
intensive hot-end is undertaken by debt-ridden Brazil and formerly capital-
scarce Korea. The strong positive relationship between steel-producing and
steel-using industries and the Japanese involvement in both in the US is an
indication of structural changes in the world economy and of new forms of
industrial governance. Capitalist regulation in this instance takes on an
international dimension without necessarily diluting its national character.

                  The steel industry in the Asian region
As the US industry responded to its technological obsolescence and foreign
competition, exporters to the US also realigned their production away from
the US market. This was inevitable as manufacturing as a whole, initially
labor-intensive and later capital-and high-technology-intensive, shifted
toward export-oriented Asian economies. Unilateral imposition of quotas
also discouraged exports to the US. The pattern of Japanese exports is
illustrative. Between 1965 and 1968, the American market absorbed nearly
50 percent of Japanese exports, exceeding Asia's share as a whole (Figure
6.2). The average export share of the US was under 18 percent and 13 percent
during 1971-95 and 1991-5 respectively. Asia's share, on the other hand,
rose nearly 57 percent during 1978-95 and 67 percent during 1986-95. Two
Asian countries, Korea and China, themselves large producers of steel,
absorbed over 25 percent of japan's exports (see Woronoff 1983:160). Korea

                                    CHANGE AND INTERNATIONALIZATION


      80                                                     •••• '   S. Korea
                                                             --       China
                                                             -  -     Total Asia
      70                                                     ----,    US
                                                             - - Export(%)

ii 50
                 , --, "
Gl    40                       ,,
!!                                             /\
cf                                    ......
      30         ...... '\._-~        ,"
                                               ,    "

                                     ......... -        ..


Figure 6.2 Changing pattern of Japanese exports
Source :Jap an Iron and Steel Feder ation, Monthly Report of th e Iron and Steel Statistics, various
Note: Exports are expressed as a percentage of production

also exported aggressively (USIntern at ional Trade Commission 1989b: tables
10-1, 10-11 ; Auty 1992:24-5), especia lly indi rect exports, such as ships in
the 19 80s (World Bank 198 4:67-8; Amsden 1989:269-90). Japan's exports
have been also in high-value items, indicating growing intra -Asian trade and
specia lization in steel products.
   The impo rtance of Asia can be gauged from Brazi l's exports. Of the 6 mt
of total exports in 1986, over 37 percent went to five Asian economies (Institute
Brasi leiro de Sideru rgia 1987). In 1996 tot al exports had increased to over
10 mt and China, Korea, Japan, Taiwan, and Thai land absorbed almost one -
third. As we have seen, Brazil's exports have been largely in semi-finished
products, the bu lk of which was export ed to th e US. H owever, even Japan
and Korea have been pur chasing Brazi lian semi-finished steel and ot her low-
value products. In 1996 Japan imported a to ta l of 41 9,000 tons, 50 percent
of which was plates, while 74 percen t of Kor ea's imports of 900,000 tons
was semi-finished items. Korea's overa ll impo rts averag ed 683,000 tons in
the second half of the 1980s, rising to over 2 mt in th e early 1990s (Korea
Iron and Steel Association, Steel Statistics Yearbook, 1995:21 7). The rapid
growth of manufacturing in East and South-East Asia-China and Thai land
especially- provided a ready ma rk et for Brazi lian semi-process ed items, while
Japan and Korea with their modern plant s have been able to take advantage
of such impo rts by further value addition. PO SCO 's exports to the Asian


region have been significant, nearly 77 percent of its total in th e past decade.
Exports to Japan have fallen from 49 percent to 41 percent.
   Based on thes e broad developments cash-rich POSCO, with its successful
joint venture with US Steel in California, has moved rapidly in the South-
East Asian region to establish numerous steel proj ects (Table 6.4) . POSCO's
ex pansion in th e region is also indicative of its technological capability,
diversifying into enginee r ing and construction, communications and data
management. Asian emerging econ omies such as Vietnam and China have
been major recipients of POSCO's know-how in steel manufacturing as
well as in engineering and construction. POSCO's strength lies in flat
products, both hot- and cold-rolled, and galvanized items . POSCO's Latin
American proj ects in Brazil and Venezuela, however, ar e upstream ventures
to ensure high-quality raw materials . Kor ean firms, including POSCO, ha ve
installed new EAF technologies that use pellets and other scrap substitutes
as inputs (see Chapter 7). With long-term industry forecasts pr edicting supply
shortages in the ASEAN economies ranging from 6 mt to 13 mt in long and
flat products respectively (Doble 1994; see also Crowley and Findlay
1993:2), we can ex pect Asia to be the new global center for steel production
and consumption.

              Restructuring and new governance structures
A new round of steel industry restructuring has been initiated by a number
of countries. This restructuring is largely driven by institutional change.
Two countries that have sought to introduce new institutional arrangements
ar e Brazil and India. Both countries, beginning in the 1980s and accelerating
in the early 1990s, launched various economic reform measures to liberalize
th e econ om y from state interv ention and transfer state assets to private
hands. The Brazilian steel industry privatization has been th e best-known
case while th e Indian gov ernment, with its major 1991 reforms package,
has op ened up th e erstwhile restricted steel sector to pri vate parties.' ? The
privatization of Indian public sector firms, including steel, has been mooted
as well.
    The government of Brazil under President Collor de M ello in th e late 1980s
introduced a far-r eaching privatization program." Th e World Bank, which
was trying to rescue the heavily indebted state-sector, fully supported this
program. In about three years 19-5 mt of crude steel capacity was transferred
to non-state sectors, representing over 70 percent of national capacity. N ew
owners included financial institutions, with a third of equity, pension funds
with 12 perc ent, em ployee s with 16 perc ent, for eign groups 10 percent,
industrial groups 8 percent, and th e rest clients, suppliers, and other Brazilian
groups (Buhler 1997).14This institutional change yielded a number of benefits;
for example, auctions, debt transfers, and so on of state financial assets brought
in $10.6 billion and tax revenues incr eased. There was also an increase in

Table 6.4 POS CO's overs eas ventu res

Steelprojects       Capacity ('000 tons)   Investment cost in $           Construction          Products
                                           million, share (%)             period"

US                  1,200                  388 (50)                        12/86-4/89           Cold rolling
Vietnam (3)         50,30,200              4 (50), 10 (50), 42 (35)         4/92-9/95           Galvanized products, bars
China (5)           100, 100, 100,         8 (10), 47 (40),48 (90),         2/95-12/98          Coil center, galvanized products, cold rolling
                    110,100                156 (60),29 (80)
Brazil              4,000                  220 (50)                         8/96-6/98           Pellets
Venezuela           1,500                  335 (40)                         5/97-4/99           Hot briquetted iron (HBI)
Thailand (2)        910, 120               708 (3), 10 (18.5)               8/96-1/99           Cold rolling, coil center
Indonesia           1,000                  507 (40)                         6/97-5 /99          Hot rolling
Indiab              100                    10 (10)                         11/97-6/98           Coil service center

Vietnam (2)                                                                 9/95-12/99c         Engineering and construction (international
China                                                                                           business centers, residential facilities,
US                                                                                              manufacturing of steel structures)

Indonesia                                                                   1/96-3/98 c         Communications and data management
India                                                                                           (production management, system
US                                                                                              planning/consulting, personnel management)

Sources: POS CO ; PO SCO Bulletin, vario us issues; per son al interviews, POS CO , Seoul, Au gust 1995
No tes
a For all project for th at cell
b Joint venture betw een POSCO (10%), its affiliate POST EEL (19.5%), and H yund ai (70.5%)
c Proj ect durat ion

productivity, competitiveness, and administrative autonomy of steel firms
(Bruce 1994).
   Critical to the success of privatization has been greater administrative
autonomy. This has meant doing away with the price controls which lay at
the heart of the Brazilian state sector's financial deficits and foreign debts.
Today Brazilian prices reflect costs of production. The extent of price rises
and the inflationary consequences of this on the Brazilian economy remain
unclear. However, after privatization the Brazilian industry has also witnessed
rising productivity. This has been possible by reducing the number of
employees, previously inflated due to featherbedding (Buhler 1997). In the
1990s USIMINAS reduced its workforce by 79 percent, while raising its output
per worker by 83 percent-from 300 to 548 tons/year. Similarly, CSN
decreased its workforce by 39 percent and increased its productivity by 152
percent. CSN is a much older plant with less automation and is located in a
highly politicized environment. As a result, its employment reduction has
been lower than that of USIMINAS, while its greater productivity increase is
due more to its lower base: 160 tons/worker/year in 1990 compared to 300
for USIMINAS. Institutional change has also yielded profits for the ailing
Brazilian sector. From $1.6 billion losses in 1990, the Brazilian industry
averaged a cumulative nominal profit of $67 million in 1996.
   Indian privatization of the steel industry has taken a different route. There
has not been a major sell-off of state assets. Instead, the government has
gradually opened up the steel sector to private capital, effectively diluting its
share of the industry as a whole. This institutional rearrangement evolved
gradually. Faced with supply constraints and reduced government savings
for investments, the state in a limited way permitted the private sector to
enter the steel industry. However, entry was strictly confined to non-integrated,
small-scale electric arc furnaces. To overcome lagging investments in an already
high-cost industry, the administration relaxed import, foreign exchange, and
industrial licensing controls. The government also allowed increased
participation of non-resident Indians (NRIs).
   As integrated production was still the preserve of the state sector, NRI
investments were targeted toward EAF-based minimills." However, within
the minimill sector there were two categories: the tiny EAFs, which were
processors and rerollers of scrap and semi-finished steel, and the more recent
mills using modern technologies. Indian minimills have been technologically
unsophisticated. They have been overtly dependent on state largesse and
characteristically rent-seeking. For example, prime scrap, the principal raw
material in EAF production, must be imported. To import scrap, owners of
minimills had to obtain foreign exchange or permission from the government.
In times of steel shortage these minimills often purchased steel, especially
construction items, from the state-owned firms and resold them at a premium.
Otherwise they simply rolled the steel, which they obtained from the state


   A SAIL official depicted th e privatization mood of th e 1980s as follows:

    In India .. .th e private sector do es not want th e public sector to go
    away. So any attempt to privatize th ese industries is being opposed
    by the private sector. Th ey have vested interest in a big and inefficient
    public sector. They ar e getting a lot of benefits-cheap inputs, market
    control... But no private sector is willing to invest in steel. They ar e
    interested only wh en the markets ar e assured. Many minimills earlier
    bought our steel and sold it at high profits when th ere were pric e
    controls. They did not produce th e steel.
                          (Personal interview, SAIL, N ew Delhi, Jul y 1987)

Technological change in the industry increased onl y after regulations were
relaxed. Until recently the privately held EAF mills far ed even worse than th e
state-owned integrated sector. In a sellers' market there were no cost or quality
considerations. As a result, several pri vate producers alr eady in th e foundr y
busin ess introduced tin y EAFs of 5-1 a-ton capacity to produce long products.
Some of th em were simply rerollers, using rail scrap produced by the state
sector to make rods and bars for th e speculative real estate market. These
units were highly profitable despite the high cost of electricity and scrap.
Th ere is plenty of evidence of power "stealing" by thes e units, often in
connivance with local state-level electricity suppliers. With economic reforms
begun in 1991 and th e elimination of public sector reservations for steel
production, the Indian privat e sector has once again entered the steel business.
However, as th e next chapter shows, this tim e private firms have entered th e
industry with an entrepreneur ial zeal not witnessed before in th e Indian
industry. They have kept abreast of recent innovations in th e EAF sector and
have even ventured to tryout new hybrid technologies. The Indian industry
is pois ed to ex pand and th e global industry, by extens ion, to experience
renewed restructuring.

The changing int ernational division of labor in steel production is indicative
of th e lar ger tr ends in capitalist production: continued technological change
and accomp an ying internationalization. Although the industry has not
witnessed an y significant innovations since the commercialization of th e BOF
and continuous casting, the associated investment costs have been prohibitive.
This has led to a gradual shift in th e int ern ational division of labor. Capitalist
regulation has been industry-led in th e US and state-led in late industrializing
countries. As production costs and productivity gaps narrowed, latecomers
have begun to challenge th e more establishe d producers in th e US and Japan.
Th e collaboration of Japanese firms with th eir US counterparts has given a
new lease on life to US plants. The technological backwardness and poor


performance of some of the state-owned steel enterprises has created the
pressure to introduce institutional changes, such as privatization. These
changes, technological and institutional, are expected to contribute further
to the changing division of labor.
    Technological change and past investment decisions have had a profound
effect on the international division of labor. The slow diffusion of modern
technologies in the US and their rapid adoption in Japan and Korea produced
varying competitive strengths. This was amply demonstrated by the
quantitative increase in, as well as the changing structure of, US imports.
With limited production on the US west coast, this regional market was
particularly vulnerable to East Asian exports. The combination of low wages
and high productivity pulled in far-flung steel producers to meet supply gaps
that resulted from capacity reduction in the US. Other countries, such as
Brazil, afflicted by burgeoning debts, were pushed out to participate in the
growing export market. Even among exporters the division of labor was
noticeable: Brazil with its inexpensive semi-finished steel, such as slabs, and
Japan and Korea with their high value-added flat products. Given our
understanding of the magnitude and pattern of past investments in the industry,
it is evident that this division has not been accidental. Rapid adoption of
modern technologies, backed by institutional capacity, has invariably dictated
the structure of global steel production.
    The changing structure of steel production is also indicative of the
internationalization of the industry. As international steel trade increased,
the largely insulated US market became part of the global production system.
While the industry as a whole has not been subject to foreign ownership, the
restructuring of the US industry illustrates the case of substantial foreign
involvement. The US industry has found renewed strength through new
institutional arrangements, such as joint ventures, to reorganize its industry.
Modernization of the American industry has been selective, targeted to
enhance the quality of flat products. The severe plant imbalances initially
resulting from industry restructuring have been largely resolved by removing
obsolete steelmaking capacity. As a result the US industry has regained some
of its competitiveness. The internationalization of the industry also has been
spearheaded by Korea's expansion in the Asian region. pasco with its
technological lead has aggressively sought to create new markets and supply
    It is clear that the restructuring of the steel industry resulting from changing
competitive strengths has been largely technology-led. Capitalist competition
leading to uneven adoption of technologies has also imposed institutional
changes. Unable to compete effectively under state-owned firms, the
governance of the industry in India and Brazil now rests more on the private
sector. Capitalist regulation as witnessed in the industry is no longer driven
by Keynesian ideology. Rather, the industry is now increasingly subject to the
discipline of international competitive forces. In this environment technological


chan ge becom es even more salient in th e global restructuring pro cess. As we
will see in th e next cha pter, new innovatio ns in an increasi ngly liber alized
econo mic enviro nment are further altering th e str ucture of steel production .
Th e dynamics of th e ca pita list system are reflected even in th e mature steel
ind ustr y as it is rife with inn ovat ion-b ased competitio n. Predi ctabl y, new
innovatio ns in th e industry have meant new player s and new location s, and
thus, like th e lar ger capita list system, th e restructuring of th e steel industry
remains an ope n -ended pr ocess.


At th e global level the steel industry witnessed significant reorganization-
with capacity contraction in th e US and expansion by the late industrializes.
Obsolete technology was eliminated from the industry, while Japan and Korea
added new innovations. At the national level, capitalist regulation, pursued
by the industry itself or by the state, determined the choice and speed of
technology diffusion in the steel industry. American firms opted for new
technologies reluctantly while their Japanese counterparts, and later the
Korean state, launched an aggressive investment program to introduce large-
scale, blast furnace-based steel production. Rapid expansion had its downside
of excess capacity, forcing Japanese firms to reorganize th eir steel industry.
Brazil and India, despite overcoming initial structural dependence, continued
to face stiff institutional difficulties in raising their technological capability.
At the firm level different technology strategies led to varying international
competitiveness. The resulting international division of labor clearly favored
those countries which had aggressively adopted recent innovations.
   In this chapter we further examine technological change as part of capitalist
competition to capture the industry's restructuring process in its totality. Thus
far the discussion has been around institutional responses to technological
change in large-scale integrated production. In this technology, high capital
costs hav e limited industry entry. However, with the advent of new generation
minimills using electric arc furnaces, the steel industry is poised for a new
round of restructuring. Entry barriers have fallen as the cost and the size of
minimills are considerably less than integrated units. Several US firms outside
the integrated sector seized the innovations to compete with established
producers. In late industrializing countries, the retreat of the state made private
sector entry in the minimill segment relatively easy. Th e examination of th e
evolution of new innovations brings out the institutional context in which
new technologies are being adopted and indicates the direction of steel industry


restructuring. In contrast to the technological lethargy exhibited by the US
integrated segment, several US minimill firms have embraced new innovations
with a pioneering approach. Even in India several entrepreneurial firms have
seized the opportunities that have become available with new innovations.
This development is especially salient in the US and India where the steel
industry in the post-war period has not been innovative. This chapter
demonstrates that the diffusion process is heavily influenced by strategy, which
in turn is shaped by the institutional setting and the legacy of past actions.
These are themes which we have already examined in the case of the integrated
segment. What is noteworthy in technology-led recent restructuring is the
innovative approach adopted by smaller firms-in both advanced capitalist
and developing economies. They have kept abreast of technological change
and introduced institutional changes to make effective use of new innovations.
New innovations have also opened up the possibility for developing countries
to leapfrog the industry, thus contributing to the open-ended nature of
industrial restructuring.
    This chapter is divided into four main parts. The first part describes the
emergence of minimills, detailing the diffusion, size of plants, and costs
associated with EAF production relative to integrated production. The second
part examines new technological breakthroughs in the steel industry, which
include new generation minimills and other innovations. The costs of
establishing such mills and operating them are discussed. The third part relates
the diffusion process of new innovations with restructuring. It brings out the
dynamic role new entrepreneurs are playing vis-a-vis the integrated sector
and also how they are shaping institutional change. For example, with
economic reforms at home and commercial opportunities abroad Indian firms
are strategically introducing hybrid modern technologies. It also shows that,
at least for US-based minimills, discarding the antagonistic labor-management
arrangements found in integrated production units has been highly conducive
to competitiveness. Both entrepreneurial initiatives and flexible institutions
are in keeping with global trends where capital mobility has created new
opportunities and rapid adjustment to changing market conditions has become
critical to competitiveness. The final section concludes by revisiting the
relationship between technological change and industrial restructuring in the
larger capitalist context.

                        The emergence of minimills
The distinctive feature of minimill technology is the melting and the purifying
of scrap using an electric arc furnace. With heavy dependence on electricity,
the initial application of this technology was confined to small volumes of
high-value metals, such as aluminum refining and specialty steels. The diffusion
of minimills has been limited by superior metallurgical qualities of steel
produced with integrated ore-and coal-based blast furnace technology.


Consequently, minimills historically ha ve been relegated to producing low
value-added long products, mainly bars , wire rods, and small shapes for th e
construction market . Only since th e 1980s has EAF technology gained a
reputation that borders on th e cutting-edge. Steel industries around th e world
ar e now ex ploring and adopting various versions of this technology, and an
incr ea sing share of output is now under EAF production (Table 7.1). Virtually
all countries have increased th eir EAF share with th e exception of Brazil. The
most prominent growth in EAF technology has been in th e US, Japan, and
Korea. As th e competitiveness of integrated firms eroded, firms with EAF
technology gained market shares. American EAF firms gained momentum
mainly because of integrated plant shutdowns as well as th e high capital
requirements of new int egrated greenfields. Japanese firms too expanded th eir
EAF capacity but less aggressivel y. Korea's EAF share on th e other hand
increas ed due to POSCO's technology strategy and private firms' desire to
capture a part of th e lucrative domestic market .
    Until recently, the institutional barriers to EAF development have been th e
countervailing market power exe rcised by integrated firms over th e industry
and, in late industrializing countries, by th e state's preference for large-scale
int egrated production units . The more rec ent expansion of EAF production
reveals several ad vantages of small-scale production vis-a-vis integrated
production. Small scale has meant locational flexibility, allowing minimill
producers to meet local market needs and in the US to source scrap from
scattered locations. It has also translated into lower investment requirement
and op erating costs. These advantages have been exploited in India as well.
Like its US counterpart, the Indian minimill sector, freed from government
regulations, has adopted modern EAF production.

Table 7.1 The diffusion of electric arc furnace (EAF) technology

                             Percentage of output                      Percentage of outputin 1995

US                           15.3 in   1970                            39.4
Japan                        18.6 in   1976                            32.3
Brazil                       24.9 in   1986                            17.6
Korea                        18.0 in   1983                            37.8
India                        25.1 in   1986                            29.7
EEC                          25.2 in   1986                            34.9

Sou rces: Barnett and Cra nda ll (19 86:7); Int ern ati on al Iron and Steel Institute (various years );
Instituto Brasileiro de Siderurgia (various years );]a pan Iron and Steel Federa tion (various years)
No te
a 15 member s


                             Scale of operations
The American steel industry has been reorganized not only because of global
developments in the integrated segment but also because of the rapid expansion
of EAF units. The inflexibility of the integrated segment to adjust to changing
competitive conditions made smaller EAF units attractive, especially for serving
inland localized markets for construction items. In the US, the availability of
cheap scrap and electric power made EAF expansion feasible. Unlike the
integrated segment where the large scale of operations determined operating
efficiency, minimills have not been subject to such economy of scale
requirements. For example, plant size in the US has ranged from 60,000
tons/year to 1.8 mt (Barnett and Crandall 1986:8-9). In the mid-1980s there
were only two plants exceeding 1 mt; most others were considerably smaller
(Table 7.2).
    Most EAF units in the US have been predictably small. Coincidentally,
both US and Japan had an absolute total EAF capacity of over 21 mt, The
top 50 percent of the US plants had an average capacity of 0.5 mt, with
another 40 percent averaging roughly 0.25 mt. In Japan, where EAF diffusion
has been slower, the structure of plant size on the whole has been similar.
About 40 percent of the top plants in Japan had an average plant size of
600,000 tons a year. In both cases over 50 percent of the plants had production
capacity under 350,000 tons. Other countries also had even smaller scales of
operations. For example, Korea in 1979 had an average firm size of 180,000
tons (Kang 1994:69). Brazilian average output per EAF unit in 1986 was
189,000 tons.
    Indian EAF units have been even smaller. Nearly 100 percent of the EAFs
were under 10-ton capacity (Basu et al. 1987). In 1989-90 there were 179
units that produced an average of only 17,500 tons per year (Etienne et al.
1992:77). Only one unit at that time had a capacity of 250,000 tons. With
rising scrap prices in India, low capacity utilization was routine. Contrary to
the experience of other countries, India's EAF share actually fell from 24.5
percent in 1981-2 to 15 percent in 1994-5 (Narayan 1995). The industry at
the time had an inefficient furnace size of 5-10 tons only, consuming inordinate
amounts of electric power. Unscrupulous EAF units "stole" power from the
grid, paid no taxes, and engaged in price gouging in the highly price-controlled
market. Far from being innovative, the overall Indian minimill segment has
been significantly rent-seeking.
    Notwithstanding the small size of EAF plants, EAF units, like their
integrated counterparts, have been also increasing in size. The
consolidation of assets by competing firms and scale economies of new
technologies cumulatively contributed to larger minimill firms and plants.
Thus the initial fragmentation of the Japanese minimill segment over time
has been reduced to fewer firms, while the average EAF size increased
rapidly (Figure 7.1). In 1960 the average EAF in japan produced 124,000

Table 7.2 Average size of minimill plant s in th e US and Japan

                                                                                           Average firm sizeby    A;,-eragt pkm size by
                                Number 1)1firms                   Number 0lpJtlJ1ts        group [million tons)   group (million tons)
(million tons)                  US              jajMl'I            US             Japatl   US            Japan    US            Japan
 1.0-2.5                          :;             3                 16              7       1.82           1.90    057            0.8 1
 0.5-0.999                        9             11                 11             14       0.67           0.63    0.55           0.49
 0.4-0.499                        B             11                 11             II       0.40           0.35    0.29           0.35
 0 .2-0.299                     11              14
                                                  ..,              11             u        0.23           0.25    0.23           0.25
 0.1-0 .199                      7                t                 7               7      0.14           0.15    0.14           0. 15
<0.100                           2                2                 2              2       0.07           0 .09   0.07           0.09

Source : Adapted from Barnett and Cranda ll (1986:8-9) and Uriu (1989:7)
No tes: US capacity is for 1986 (in net to ns) . Ja pan 's dat a are fo r 19 80


I       60,000

                                                                          ----. EAF
        20,000                                                            - - UnearlEAF)

Figure 7.1 Rising trend in Japan's electric arc furnace (EAF) size
Sou rce: Ministry of International Trade and Indu str y, Yearbook of Iron and Steel Statistics,
various years
No te: Th e linear trend is estim ated as follow s: y=2125 .1x+72 7.16 ; R2=O.86 38

tons. In twenty years, the average capacity had nearly quadrupled to
460,000 tons. The most noticeab le increase in size occurred between 1990
and 1995, when average EAF capacity nearly doubled from 0.591 mt to
1.097 mt. Simi larly, in 1990 Korea's average annual EAF capacity was
274,000 tons, which ex perienced roughly 50 percent growth since 1979
(Kang 1994:69). In the early 1990s, Korea had ten minimill companies
producing an average of 1.13 mt. Two firms had over 2.5 mt capacity,
and three others over 1.0 mt each (Hogan 1994:42) . Un like the Japanes e,
Kor ean minimills were less fragmented as 50 percent of Korean minimills
had over 85 percent of minimill capacity.

                                     Minimill costs
The different process underlying EAF production permits small-scale
operations, making minimill output less capital-intensi ve. Consequently, small
size has meant smaller total outlays than for integrated production.
Notwithstanding th e convergence of minimill capacity with integrated
production today, roughly 2.0 mt, the inherently different production proc ess
makes minimills cheaper in terms of capital investm ent. For example, in the
US th e capital requirement for integrated production was $ 1,421/ton in 1985


whereas electric furnace-based mills were built for an average of $250-300/
ton (Barnett and Crandall 1986:53 ). Assuming a minimum efficient scale of
3.0 mt for an integrated plant and 0.5 mt for a minimill, the respective capital
investment translates to over $4 billion for integrated and only $150 million
for a minimill. 1 More recent estimates show an investment cost of $340 million
for a state-of-the-art minimill producing 1.0 mt compared to $3.6 billion for
a 3.0 mt integrated plant (Hall 1997:253 ). While minimill output is limited
to a few products and hence calls for lower investments, EAF units have clear
advantage in lower operating costs in products that both minimills and
integrated plants produce, such as wire rods. Higher capital outlays with
longer pay-back periods contribute to a higher financial burden for integrated
   The principal input for EAF steel production is scrap. The availability of
scrap is a direct function of the level of industrialization. Not surprisingly,
the US economy as the largest generator of scrap has gone the farthest in
establishing minimills. Scrap-scarce economies, including Japan, have been
slow to adopt minimill technology. It may be recalled that the rapid diffusion
of BOF technology in Japan in the 1950s and 1960s took place partly because
of its dependence on imported scrap used in EAF and OHF processes. Japanese
and Korean scrap prices have been considerably higher than US prices (Paine
Webber 1987: table 24). However, as scrap availability increased and the
relative price of electricity fell, minimill production in the US became
commercially attractive. Where integrated production has been weak, for
example in the west coast and the south-east, minimill production became
competitive. Just as the small scale of EAF operations gave minimills their
geographical flexibility, the decentralized scrap collection system in the US
reinforced the dispersion of minimills throughout the US.
   There are two kinds of scrap: one is obtained from recycled materials
(purchased scrap) and the other is generated by steel plants themselves (home
scrap). Home scrap is of higher quality than purchased scrap. However, as
integrated production adopted continuous casting, increasing their yields,
the availability of home scrap fell (see Figure 7.2).2 Purchased scrap is both
the "prompt" industrial variety obtained from stamping plants and the
"obsolete" variety, namely recycled metal products. Except for the
recessionary period of the early 1980s, the US scrap supply has steadily
increased due to increased recycling and recovery methods. With industrial
restructuring and increased operating efficiencies in the US, the decline in
home scrap generation has been compensated for by the increase in
purchased scrap. Scrap prices have fluctuated with the business cycles and
have risen since the 1970s-from the 1974 peak of $107.83Iton to the 1995
peak of $133.70Iton (American Metal Market in Korea Iron and Steel
Association, Steel Statistical Yearbook, 1997:278-9).3However, scrap prices
have been consistently less than the superior BF-based hot metal prices, a
substitute for scrap. In 1975, scrap was valued at 63 percent of the hot

                                                                        Total scrap
                                                                        Net exports
     120                                                                TotalUS supply
                                                                        Unear (total US supply)


s     80
'0 60
~ 40

             -_ ......

           1960   1962 1964 1966 1968 1970     1972 1974 1976 1978 1980 1982 1984

Figure 7.2 US scrap supp ly, 1960-84
Sources: American Iron and Steel Institute, Annual Statistical Report, various years ; Barnett
and Crandall (1986)
Note: Linear (tota l US supp ly) is a linearized trend

metal price and in 1985 on ly 38 percent (Barnett and Crandall 1986:31).
Increasing supply and falling relative prices of scrap have had a favorable
effect on US minimill competitiveness.
   In the 1980s, when integrated producers in the US began to retrench
obso lete capacity, minimi lls producing long products became highly
competitive. American minimills had a cost advantage of about $100 per
ton. In 1985 a representative US minimill had an operating cost of $244/ton
of wire rod (Barnett and Crandall 1986:21 ). This cost excluded depreciation,
interest, and taxes. The price of scrap was assumed to be $85 per ton and
1.12 tons of scrap was used for every ton of wire rod. Labor costs for this
product were considerably lower: between 35 and 50 percent of integrated
costs. Lower wage rates as well as higher productivity in the minimill sector
contributed to its cost competitiveness. The location of minimills in semi-
urban areas and away from the unionized, industrial heartland kept wage
rates low. In 1995 the to ta l minimill steel capacity stood at 4 1 million net
tons, of which 57 percent fell unde r non-unionized mills (computed from
New Steel May 1995:27-9); 39 percent of the minimills' 34,823 employees
are non-unionized.
   Lower entry barriers, such as flexibility, reduced capital requirements, and
lower operating costs, have encouraged minimills to locate in underserved
ma rkets near sources of scrap. More importantly, the ease of entry has also


injected an entrepreneurial style that has been receptive to new technologies,
a phenomenon rarely witnessed in the post-war American steel industry
(Barnett and Schorsch 1983; Acs 1984:98-104; Barnett and Crandall 1986).
As minimills diffused through the US market, innovation continued to improve
the technical parameters of minimill performance and effectively encroached
upon flat products markets controlled by the integrated segment.

           Technological breakthroughs in the non-integrated
                          steelmaking process
With incremental and radical innovations in minimill technology, US integrated
producers continued to face new competitive challenges. Following the
generalized technological trajectory, minimill operations increased in size but
remained smaller than integrated operations. Most improvements have been
directed toward the flat products market, a segment that has been the
monopoly of integrated producers. The inherent limitations of scrap-based
production in producing flat products encouraged the development of
alternative inputs and at the same time lowered production costs by doing
away with expensive BF output but retaining the hot metal quality. Ironically,
the rapid expansion of minimill capacity in the US and elsewhere put pressure
on scrap prices, thus encouraging the development of scrap substitutes, such
as directly reduced iron (DRI) and hot briquetted iron (HBI).4 Some of the
more important technological breakthroughs in minimill operations are
presented in Table 7.3.
    The developments in EAF technology reflect their cost-reducing
properties.' With increases in the size of EAFs, progressively from 50 tons
to over 200 tons, operating costs have fallen . Because they are smaller than
most integrated production units, the benefits of flexibility have been
retained. However, there is a convergence of minimum efficient scales
between modern EAF units and the smaller integrated units. For example,
Gallatin, a US-based EAF producer, is expected to have a plant capacity of
2.0 mt, a size that matches some BF-BOF integrated plants. In this sense
"minimills" is a misnomer for modern EAF units. Technological
breakthroughs have also reduced energy costs. The two most critical
innovations in EAF production have been substitutes for scrap and thin-
slab casting. Both of these product and process innovations have made
quality flat sheet production by minimills realizable.
    The development of scrap substitutes, such as DRI and HBI, has made
scrap dependency a thing of the past. " Production of DRI is made possible
with natural gas, while coal is used for HBU Normally some scrap is combined
with DRI as charge for the EAF. The minimum efficient size for a DRI module
is anywhere between 0.5 mt and 0.9 mt. Several iron producing modules can
be used to expand DRI capacity. Steel Dynamics is planning a 0.5 mt HBI
plant in the US, while BHP of Australia is constructing a 2 mt HBI plant. The


Table 7.3 Recent techn ological breakthroughs in alternative steelma king proc esses

Equipment/process            Benefits

Size ofEAFs                  Larger vessels for melting scrap: from 50 to 230 tons .
                             Greater output, efficiency.
TypeofEAFs                   AC and DC furnaces. New DC furnace reduces electrode
                             consumption from 10-12 lb/ton by 3 lb/ton.
General EAF                  Reduced consumption of electricity, electrodes,
improvements                 refractories.
Use of oxygen in EAFs        Similar to BOF, oxygen lance systems, less energy
                             needed, reduced nitrogen, power consumption, tap-to-tap
                             time, increased throughput.
Twin-shell EAFs              Two EAFs used simultaneously: one to reduce scrap with
                             oxygen and the other to melt and superheat scrap .
                             Increased productivity, flexibility, progressive reduction
                             in tap-to-tap time from 5 hrs to 45-60 minutes.
Width of electrodes          24 inches for AC furnaces, 30 inches for DC
Alternative irons (DRI)      Substituting scrap with DRI, HBI made with iron ore
                             and charged into EAF. DRI takes less time to melt than
                             scrap and has less impurities.
Thin-slab casting            Slab thickness to 50 mm or less, rolled down to 1.0-1.5
                             mm. Reduced energy consumption, capital costs, less
                             yield loss. Liquid core reduction (LCR) to improve the
                             slab's internal and external surface quality. Also known
                             as compact-strip-production (CSP) and inline-strip-
                             production (ISP).
Faster rolling mills         Less energy consumption, increased throughput.
COREX                        Bypasses coke ovens and BFs, produces hot metal that
                             can be charged int o EAF or BOF, uses non-coking coal,
                             less polluting than coke ovens, lower capital costs, can
                             recycle off-gas for electricity.
Alternatives to COREX        Smelting processes with off-gas but more efficient than
but all pilot projects:"     COREX.
Computerization              Better process controls for oxygen injection, power and
                             electrode consumption. Continuous process.

Sour ces: Ne w Steel, various issues, and other industry documents
a America Iron and Steel Institute project with US government (Department of Energy)
  participation. Direct Iron Ore Smelting (DIOS) project under several Japanese firms and
  Japanese government participation, and HISMELT pioneered by CRA of Australia and
  Klockner of Germany (replaced by Midrex of US)
EAF=electric arc furnace


bulk of D RI production is in developing countries where ore and natural gas
are plentiful.
   Globally, DRI production is gaining momentum. In 1983, twenty-one
countries with total DRI capacity of 19 mt utilized only 40 percent of capacity
(Judet 1985:47). In 1995, a total of 30.67 mt of DRI production was in
place, concentrated in regions endowed with cheap iron ore and/or natural
gas, such as Mexico, Venezuela, the Caribbean, the Middle East, and India.
the past, shipping costs as well as the price of natural gas have unfavorably
affected DRI use. However, with various innovations DRI units are rapidly
diffusing in scrap-scarce economies, such as India. Even in the US where
scrap supply is not a problem, DRI production has been initiated mainly to
feed the new generation EAF-thin-slab casting plants. With few global supply
constraints on iron ore and the Korean government's de facto limits on private
sector entry in large-scale blast furnace-based mills, Hanbo of Korea has
adopted the DRI process for its EAF plant. Recent US prices for DRI have
hovered around $ 125Iton, compared to $13 Olton for scrap (Hall 1997:245).
The availability of DRI relative to scrap is making EAF production
commercially attractive.
   Thin-slab casting has boosted modern EAF production by permitting the
casting of slabs that are close to the desired shape (near net shape). SMS
Schloeman of Germany pioneered the thin-slab caster or the compact strip
production (CSP) process, while NUCOR of the US introduced it
commercially. Mannesman Demag, also of Germany, has developed the in-
line strip production-its version of the thin-slab caster. Unlike conventional
continuous casting where slabs must be thick and wide, the thin-slab caster is
designed to handle the small outputs of EAFs to produce 50 mm slabs that
can be quickly and efficiently rolled down to sheets a couple of millimeters
thick. Not only is there significant cost savings but the high quality of iron
charged in the EAF permits the production of exposed-body sheets for autos
and appliances.
   Cost savings with thin-slab casting relative to conventional casting are
considerable: for Indian conditions it was estimated to be 19 percent from
casting alone and 42 percent in overall operating cost (Sengupta 1995:42).
Although thin-slab casting has been designed for EAF output, traditional
integrated mills can also retrofit this equipment with their existing operations.
ACME Steel of the US introduced a thin-slab caster to replace ingot casting,
hoping to save 20 percent of its manufacturing costs through labor and energy
cost reductions (Ritt 1997:72). This is a stand-alone caster relying on steel
produced by its BF-BOF process at mills in nearby locations. Some minimills
have adopted an intermediate medium-slab caster that is more flexible than
conventional ones but is not limited to the narrow product range of the thin-
slab caster.
   One other innovation that has the potential to alter the steel industry
radically is the COREX process. It is strategically similar to DRI in that it


byp asses ex pens ive BF-based hot met al. H owever, it also has th e adva ntage
of sma ll size and ch oice of down str eam pr ocess. For exa mple, th e hot met al
pr oduced by CO REX can be char ged either int o an EAF as in a minimill or
into th e BOF of an integ ra ted mill. The fir st pr oject was comm erc iall y
introduced by ISCOR of South Africa with a C-1000 module (1,000 ton s
of hot met al a day). Th e pr ocess, develop ed by Voest-Alp ine of Au str ia,
uses nonc oking coal to produce m olt en iron . Iron ore in vario us forms is
reduced in a sha ft by gas, melted , and t apped just like a tr ad ition al blast
furn ace. Th e adva ntages here are significa nt. Th e pr ocess does not rely on
cok ing coal and henc e does away with th e expensive cok e ovens used in
int egr at ed pr oduction; nor does it require lar ge-scale blast furn aces. For
exa mple, H anb o of Kor ea is integ ra ti ng DRI pr oduction wi th C-2000
CO REX modules to mak e hot met al for its EAF ch ar ge, while Jindal of
India is ins ta lling two C-2 000 modules for hot iron to be comb ined for
BOF pro cessing. Like th e CO REX, which does away with th e cok e-m aking
stage, th ere are closely relat ed dir ect steel ma king pr ocesses, such as th e
American AISI, th e Japan ese DI O S, and th e Austra lia n-Germa n HI SMELT
(see Ritt 1996 for det ails). H owever, th ese pro ject s are still at th e pilot
stage and are not expecte d to be commerci ally via ble for severa l years. Two
immediate benefit s are reduced t ot al inves tment costs and envi ro nmenta lly
less dam agin g opera tions. Ano ther benefit of CO REX technology is th e
recycling of off-gases pr oduced by th e pr ocess, which can be used as an
energy sour ce either as electricity, heat , or a reductant.

                          Costs of new technologies
The new genera tion of steel technologies has overcome th e barrier of high
cap ital requ irements. Previou sly th e main bottleneck was th e econo mies of
scale asso ciated with integrat ed production . Whereas a 3 mt plant is routine
for an integra ted facility, a thin-slab EAF plant can be eas ily designed with
half as much cap acit y. Thus cost per ton of hot roll ing cap acit y wo rks out to
$200- 250/to n for integra ted process and less th an $1001ton for a (thin-slab)
CSP (Scho rsch 1996 :47 ). Th e difference in tot al investment costs between
th e two types of plants is also significant (Table 7.4). For a 3.4 mt integrat ed
plant, tot al investm ent has been estima ted to be $2.70 billion or $793 lto n of
cap acity, while a new genera tio n mill requires only $450 mill ion or $450/
ton . Int egrat ed mills also have very high maintenanc e costs. For exa mple, a
blast furn ace reline, which is necessar y every few years, costs abo ut $300
million-a sum th at is close to th e total investment needed for a new minimill.
Recent actua l expenditures for new minimills have been even lower (Hall
1997:25 3 ).
    Declining investment cost has been one ma jor reason for th e continu ed
gro wth of minimills. Th e other is th e low er ope ra ting costs. It was earlier
shown th at wire rods produced by a tr ad ition al minimill are cost competitive

Table 7.4 Greenfiield investment costs; minimill and integrated in the US

                        Electricfurnace/thin-slab route     Blast furnace/BOF route              Comments

Process                 Tons           Cap.     Cap.        Tons ,          Cap.     Cap.
                        needed         cost!    cost        needed          cost/    cost
                                       ton      ($ mill)                    ton      ($ mill)

DR IIHBI facility           500,000                         -               -        -           Assumes EF/TS route uses DRIIHBI for
                                                                                                 50 % of met allics charge . Yield in
  DRI                                  200      100                                              steel furnaces only 85 % on DRIIHBI
  HBI                                    40      20                                              material.
Coke ovens              -              -                    1,100 ,000      300          330     Assumes coke rate of only 0.4 ton per
                                                                                                 ton of pig iron due to use of pulverized
                                                                                                 coal in jection.
PCI facilit ies         -              -        -               280, 000        80          22   Each ton of pulverized coal injection
                                                                                                 replaces one ton of coke.
Blast furn ace          -              -        -           2,800 ,000      200          560     Hot metal (i.e., molten pig iron ) assumed to
                                                                                                 be 80% of the metallics charge. Includes
                                                                                                 sinter plant.
Steelmaking                                                                                      This figure includes the cost of land,
                                                                                                 infrastructure, and all supporting facilit ies.
   EF                    1,000 ,000    150      150
   BOF                                                      3,400,000       200          680
Continuous caster                                                                      Includes heating furnaces.
  Th in-slab             1,000 ,000       40       40
  Convent ional          -            -        -        3,400,000       75       255
Hot strip mill                                                                         Assumes a 5 or 6 stand finishing train.
  Stands                 1,000,00 0   140      140                                     For BF/BOF route" includes a reversing
                                                                                       primary stand and Stelco coil box.
Total                                                   3,400,000   250          850

Totals                                                                                 Nucor plant at Crawfordsville built at
                                                                                       bargain price . Also only four stands hot
With DRI                 1,000 ,000   43 0     430      -           -        -         strip mill.
W it h HBI               1,000 ,000   450      450
Without DR IIHBI         1,000 ,000   330      330      3,400,000   793      2,697
Infrastructure costs     1,000 ,000   120      120      3,400,000   294      1,000     Includes maintenance shops, in-plant
included above                                                                         railroad, roads, emplo yee facilit ies,
                                                                                       adm inistration office, etc.
Polluti on control       1,000,000        35       35   3,400,000       75       255   These come to about 11% of capital cost for
costs included in                                                                      EF/TS route and 10 % for BFIBOF route .

Source: Paine Webb er (1990)

relative to int egrat ed production . Similarly, for hot-rolled coil und er thinslab
casting, opera ting cost per ton is less th an integrat ed output. For exa mple,
tot al opera ting cost was $3091ton vers us $468 /to n (Paine Webb er 1992 :62 ).
Casting and roll ing costs for thin-slab casting was $30 to $52 for integrat ed
mill (Schorsch 1996 :47). Wh en capit al charges are includ ed in operating costs,
minimill s had a financ ial burden of only $36/to n compared to $ 170lton for
integrat ed production (Hall 1997:254 ).
    The major pl ayer s in th e diffu sion o f new min im ill s are both the
inn ovat or s as well as th e adopters. In th e US severa l for eign firms have
joint ventures in minimill opera tio ns (Table 7.5) . H owever, th ese are not
th e cutting-edge minimill techn ologies depl oyed for producing flat products.
Jap an ese EAF firm s have a stro ng pr esenc e in th is segme nt of th e American
steel industr y. Virtuall y all of th e recent minimill innovati on s have been
from th e adva nced cap ital ist countries. Germa n firms have been at th e
for efr ont of thin-slab casting. SMS Schloe ma n pion eered th e CSP pr ocess,
soon followed by M annesman Demag with its ISP process. There are sixteen SMS

Table 7.5 Fore ign players in US minimills

USfirm                Foreign partners          Equity (%)      Markets                 Start-up

Auburn Steel      Sum itomo"                     90             Billets, merchant       1975
                  Kyoei'                         10             bars
Arkansas Steel    Yamato Kogyo"                  50             Tinplate, flat bars,    n.k.
                  Auburn Steel                   25             billets
                  Sumitomo"                      25
New CF&I Steel Oregon Steel                      85.6           Billets, bars, rail,    1994
                  Nippon Steel'                   9.52          OCTG
Florida Steele    Kyoei'                        100             Bars, rods              1992
NUCOR-Yamato Yamato Kogyo"                       49             Sections                1987
                  NUCOR                          51
Tamco             Tokyo Steel'                  100             Rebars, rods            n.k.
Ausreel Lemont    Kyoei'                        Combined        Tinplate                1994
                  Sumitomo"                     100
Citisteel         GTIC, China                   100             n.k.                    1988
Copperweld"       Daido'                         33             n.k.                    1989
Georgetown        Kuwait                        n.k.            n.k.                    1986
Tuscaloosa        British Steel                 100             Plate rolling mill      1981
Trico Steel (LTV) Sumiromo'                      25             Hot rolled sheets       1994
                  British Steel                  25
                  LTV                            50
Sources: Fu jitani (19 95); Keid anren (19 96 :86); H all (1 997 :2 03)
a Ja pan ese partn er
b Cha pter 11 in 1993
c takeover
n.k .enor known by t he a uthor at the time o f wr it ing . Some of these pla nt s have cha nge d
ownersh ip an d equit y


thin-slab projects around the world, of which 50 percent are in the US. Other
contenders, such as Davy International of the UK and Danieli of Ital y, claimed
similar technological expertise (personal interviews, Mannesman Demag,
Davy International, Samsung, Tippin-Samsung, and SMS, Pittsburgh, March
1995). Tippin-Samsung, an engineering joint venture between America's
Tippin and Korea's Samsung, and Sumitomo of Japan also claimed non-
conventional (medium-slab) casting process. Voest-Alpine, the pioneer of the
BOF, is also the developer of the COREX process.

          The diffusion of new technologies and restructuring
Predictably, new innovations have been generated in the advanced capitalist
countries. Their diffusion has been also spearheaded by a few firms, such as
the US-based NUCOR. However, on closer inspection we find that some
developing countries are playing a vital role in the diffusion process. For
example, firms from Korea and India are also involved with thin-slab casting
and COREX processes. The adoption of new minimills has been also facilitated
by the diffusion of DRI production in developing countries. Although the
technology for making DRI was pioneered by Midrex, an American firm
now owned by Kobe Steel of Japan, Mexico's Hylsa has also developed a
similar process for ironmaking. The adoption of the Midrex process has been
led by India's Ispat and Essar Groups. Of the 18 mt of global DRI production
in 1990, Ispat's share alone was 4 percent (Schriefer 1996:42). In 1995, Ispat
had 15 percent of 30.7 mt, which is expected to grow to 25 percent of 40 mt
of global production.
   The diffusion of new technologies has been also accompanied by
significant institutional changes. In contrast to the conservative approach
of the integrated segment, the new minimill industry exhibits tremendous
entrepreneurial energy. Another important change is the cooperative
industrial relations found in minimills. With the weakening of overall entry
barriers to steel production, entrepreneurs have seized opportunities to use
new innovations in creative ways. For example, firms have integrated DRI
charge with the COREX process for EAF production, while the COREX
charge has been directly fed into the integrated BOF process. Conversely,
hot metal from the blast furnace is being fed into an EAF thin-slab mill as
well. 8 This hybridization of technologies, opening up new avenues for private
sector investments, has altered the very nature of capitalist regulation. From
large oligopolistic, often state-dominated steel firms, the entrepreneurial
units are more flexible, competitive, and highly receptive to technological
change and commercial opportunities. The institutional shift has been also
accompanied by new forms of labor arrangements. Minimill workers in the
US are less unionized than their integrated counterparts. Two reasons for
this are the location of minimills in less industrialized semi-rural areas and


management's desire to avoid antagonistic labor-management relations,
which are typical of integrated mills.

            From passivity to entrepreneurial breakthroughs
Technological breakthroughs in a changing institutional context have also
introduced a new round of steel industry restructuring. It is easy to see why
minimills became a new force in the American steel industry. The costly
technology and financial crisis of US integrated production, combined with
poor location and import competition, made small-scale EAF production
attractive. Also, initial production was confined to low value-added long
products where quality requirements were less stringent. However, minimills
have also had their share of difficulties, especially older mills producing
simple billets for wire rods. Until recently EAF production in the US, Japan,
and India has been peripheral to integrated production. However, unlike
the independent role played by US producers, minimills in India and Japan
have been less autonomous from other producers. For example, numerous
small mills in India relied on the state sector for semi-finished steel for
rerolling, while in Japan a number of minimills are controlled by integrated
   The staunchest supporters of modern EAF mills are independent
American minimill firms (Table 7.6). The Japanese, despite their
enthusiasm for new innovations, such as the BOF and continuous casting,
are far behind US firms in modern minimill technology. " The Japanese
industry's lag in minimill technology has been due to the strength of the
integrated segment as well as stringent customer demands, making thin-
slab casting output less acceptable (personal interview, Japan Iron and
Steel Federation, Tokyo, December 1996). Globally, the industry leader
in the minimill segment has been US-based NUCOR. Led by an
entrepreneurial Kenneth Iverson, NUCOR in 1989 established the world's
first thin-slab casting plant in Crawfordsville, Indiana (see Preston 1991) .
NUCOR has expanded its capacity with two new mills, one at Hickman,
Arkansas, and the other at Berkeley, South Carolina. Gallatin Steel, a 50-
50 joint venture with Canadian Dofasco, has also introduced this
technology at its Kentucky plant. In the mid-1990s, of the fifty-two thin-
slab minimill projects in the world that were either in operation or under
consideration, sixteen projects, or nearly a third of total capacity, was
slated to be in the US (Hogan 1994:82-3). In the last ten years nearly 20
mt of flat-rolled minimill capacity in the US has been added.
   Outside the US the diffusion of modern EAF thin-slab technology, though
limited, has been picking up. Korea has two projects in place that have
introduced hybrid technologies, such as the DRI with the COREX and BF-
based thin-slab casting. Diffusion of these technologies is conspicuously absent
in Brazil and Japan, even if Japanese firms, such as Nippon Steel and Nippon


Table 7.6 Diffu sion of new minimill techn ology in the US

Year          Firm!location                      Steel-       Hot-          Slabcaster supplier
                                                 making       rolling
                                                 capacity     capacity
                                                 (million     (mil/ion
                                                 tons)        tons)

1. 1989       NUCOR,                              1.8         1.8           SMS
    1994      Crawfordsville, Ind iana                                      SMS
2. 1992       NUCOR, Hickman,                     2.2         2.2           SMS
    1994      Arkansas
3. 1995       Gallatin, Kentucky        1.2                   2.0           SMS
    (1998)"                            (2.0)
4 . 1996      Ipsco, Iowa               1.0                   1.0           Mannesman Dernag
5. 1996       Northsrar, BHP, Ohio      1.5                   1.5           Sumitomo
6. 1995       Steel Dynamics , Indiana  0.9                   2.0           SMS
    (1999)"                            (2.0)
7. 1997       NUCOR, Charleston, South 1.8                    1.8           SMS
8. 1997       Trico Steel, Alabama      2.2                   2.2           Sumitomo
    1992-7 Expansion by 7 Brownfield                          3.6

Sources: New Stee l (April 1996:41 a nd Decem ber 1 994 :3 7 ); Hall (1 99 7:2 36-7)
a Target year for exp anded cap acity (figures in parentheses )
Tota l of 8 greenfield proj ects-1 2 .6 rnt capacity (d uring 19 89-9 7 )

Kok an , are major supp liers of EAF units. The strength of Japanese integra ted
producers and th e hu ge ca pacity alrea dy in place have imp eded th e ado ptio n
of new EAF technology in Japan . Tokyo Steel, an independent firm, has
introduced new EAF ca paci ty but with conventiona l casting. Similarly, in
Brazil the availability of high-quality ore and the need to consolidate integrated
production after priva tizatio n have damp ened th e need to create new EAF
cap acity.
   Like NUCOR, severa l enterp rising firm s fro m th e US, Ind ia, and Korea
have exhibited an entrep rene uria l strea k bent on comp eting with integra ted
firms in th e flat sheet markets. Th ey have been aggress ive in ado pting th e
sma ll-scale innova tive techn ologies. For examp le, Ispat Gro up's Indian branch
and H anb o of Kor ea have launched new inn ovati ve production facilities.
Dubbed th e NUCO Rs of Asia, Tokyo Steel and H anb o are seen as maverick
firm s (Berry 1996 ). Rather th an tow th e line of large integrat ed firm s in
restr aining capacity growth, th ese two independent firm s invested heavily in
recent inn ovati on s to cap ture part of th e flat pr odu cts mar ket. H anb o opted
for a new minim ill (it alrea dy had one) using sta te-of-the-art techn ologies
after an earlier requ est to set up an integrat ed mill to capture th e growing
Korean steel ma rket was rejected by th e govern ment. In th e course of two


and a half years, Hanbo planned for five EAFs, two SMS thinslab casting
machines, two Sumitomo conventional casters, two COREX plants, and one
DRI plant.'? Similarly, the Mittal family of Ispat Group overcame domestic
restrictions by setting up a mill outside India and over time purchased several
foreign steel operations to become one of the largest steel companies in the
world. The company has also combined minimill innovations with the
traditional blast furnace in a recent greenfield project. Such entrepreneurial
behavior, best illustrated by NUCOR, is also exhibited by minimill producer
Tokyo Steel, the first Japanese EAF firm to produce hot coil, hitherto a
monopoly of the integrated segment.
    The earlier innovative behavior of the Japanese integrated firms has not
been replicated by the minimill sector because of the peculiar interfirm
institutional arrangements. A sizable number of minimills is owned by the
integrated firms. This atypical industry structure is reflective of the kereitsu
relationships typical among large Japanese enterprises. For example, minimills
such as Toa Steel, Godo Steel, and Kyoei Steel are part of NKK, NSC, and
Kobe integrated companies respectively (personal interview, Japan Iron and
Steel Federation, Tokyo, December 1996). In many cases integrated steel
producers manufacture the electric furnaces which they supply to their
affiliated minimill firms. Thus it is not surprising that even though the Japanese
EAF segment is the world's largest-absolutely and relatively-the sector
has not exhibited the same kind of dynamism as American firms. 11 This group
strategy is illustrated by transferring NKK's H-beam production to a new
plant operated by Toa Steel, an affiliate of NKK (personal interview, NKK,
Tokyo, December 1996). The implication of such an institutional arrangement
is an orderly expansion of capacity and adjustment to excess capacity by
large firms and, by default, by their affiliates. Ironically, it has had a dampening
effect on innovative behavior.
    Notwithstanding the cartel-like arrangements among integrated and
minimill firms, excess capacity, as we saw in Chapter 4, has been unavoidable.
Prior to the major round of restructuring by the big enterprises in the 1980s,
the Japanese minimill segment had already undergone painful adjustments in
the 1970s. Expansion of both the integrated and minimill segments during
the high-growth era, followed by the energy crisis, resulted in overcapacity in
the Japanese steel industry. New capacity added by independent EAF
operators, such as Tokyo Steel, posed a whole new threat to the stability of
the steel market in japan (see Uriu 1989). Competition was severe in the long
products market, and older, smaller minimills had to absorb the brunt of
industrial restructuring. By 1978 nearly a third of EAF capacity was over
fifteen years old, in 1987 over half (Uriu 1989:93). The appreciation of the
yen eroded the profitability of Japanese firms as a whole but minimills were
particularly hard hit. The restructuring of this segment was inevitable (see
Table 7.7). Minimill firms were consolidated and almost half the furnaces
were scrapped or decommissioned. Overall EAF capacity, however, increased,


Table 7.7 Restructuring of the Japanese minimill sector

                   No.offirms        No. offurnaces      Total capacity     Employment
                                                         (million tons)

1978               69                146                 20.79              36,400
1983               58                115                 25.98              30,600
1987               56                 93                 27.50              19,300

Source: Uriu (1989:90)

as new furn aces with lar ger ca pa cities were insta lled and inde pendent firm s
like Tokyo Steel entered th e mark et in a big way. Such persistent excess capacity
in th e Jap an ese in dustry in jecte d additio na l restruct uring pr essures.
    Tok yo Steel's refu sal to restrain ca pa city an d outp ut as dictat ed by th e
integ ra ted secto r created m ajor ind ustry regul at ion problems. Tokyo Steel
does n ot belon g to any ke reitsu gro up nor is it a member of th e influential
Jap an Iron and Steel Federat ion .P Not heeding th e indus try's counsel, Tok yo
Steel in 1991 entere d th e flat steel m arket . Co nse q uently, it ex pa nded its
m arket sha re by comp eting aggressive ly with th e Jap an ese integra ted segment
as well as with imp orts, albeit init ially at th e low- valu e end. Tok yo Steel 's
threat was serio us enough to m ak e Ni ppo n Steel exercise its market clout.
Indu stry so urces rep orted th at in the past N ippo n Steel had in structed
influentia l Jap an ese tr ad ing compan ies (integra l to th e kereitsu system) not
to sell Tok yo Steel's o utput (see Berr y 19 96 ).
    Stra tegi c ex po rting of scra p by Ni ppo n Steel raised domest ic scra p pric es,
thus p utting Tok yo Steel, a major user of scra p for its o pera tions , in an
unc ompetitive position. Similarly, NSC's selling of pig iro n to its minimill
affiliates but not to Tokyo Steel is n ot only a good ind icat or of th e fierce
compet ition bet ween integ ra ted compan ies and inde pen dent minimill s but is
also indicative of th e threat posed by Tok yo Steel. In 19 95 , Tok yo Steel paid
h igh pric es: $145 /to n for scra p and $165/to n for pig iro n. This has been th e
price paid by th e ind ependent compan y for not submitt ing to th e industr y-
im pose d regul at or y measures to coor din ate output and pr ices.
    The ado ption of new minimill technologies is intrinsically linked to business
strategy. For example, the Japanese steel indu stry, dominated by a technologically
efficient int egr at ed segme nt, has been slow to introduce sta te -of-the -art
minimills. Even maverick firms like Tok yo Steel have not introduced th e full
ensemble of new minimill techn ology, fearin g possible pro duct qu ality problems
in a highly demanding Japanese market (perso na l interview, Japan Iron and
Steel Federati on, Tokyo, December 1996 ). Similarly, PO SCO's big presence
has limited th e diffusion of second-genera tio n minimill technologies in Korea.
Amo ng th e private secto r firm s, only H anb o has ado pted new technologies.
Other firms such as Inchon Steel, an EAF affiliate of th e gia nt H yundai


conglomerate, have been more cautious. They have not been confident about
Hanbo's minimill expansion nor the COREX process (personal interview,Inchon
Iron and Steel Co., Inchon, August 1995).13 Paradoxically, POSCO, as the
handmaiden of national industrial development, has proceeded to install new
innovations, its monopoly and global competitiveness notwithstanding. At its
Pohang plant, POSCO has installed a COREX unit and in its Kwangyang site
two thin-slab casting EAF units . POSCO's technology strategy has been to
satisfy immediate domestic shortages of hot-rolled coil, which these processes
can quickly meet in a less expensive way than integrated production. More
importantly, experimenting with new technologies at this time is expected to
prepare it well for the next decade when several of POSCO's blast furnaces
and coke ovens will be retired. This far-sighted approach to innovation reveals
that a state-owned integrated firm can be equally entrepreneurial.
    Entrepreneurial investments in the Indian steel industry grew out of the
inability of state-owned integrated units to meet domestic demand. The
government promoted EAF units; however, initial capacity was limited to
0.25 mt. With economic reforms, India's Ispat Group broke through the
entrepreneurial inertia to orchestrate a global firm with 12.5 mt of steel
capacity. Already the Group has 18 percent of global DRI production. Like
its entrepreneurial counterparts in the US, Korea, and Japan, the Ispat Group
is engaged in new minimill technology. Today Ispat is far more
internationalized than most steel firms. Its recent acquisitions include
steelmaking and DRI plants in Trinidad and Tobago, Mexico, Canada, and
Germany. It has steel operations in Indonesia, its first overseas venture, and
several facilities in India (Figure 7.3).
    In systemic terms, this innovative behavior signals the growing maturity
of Indian capitalists and the increasing technological capability of the steel
industry. Other Indian firms have also been innovative. For example, the
Mittal family's Indian operation Nippon Demo Ispat Ltd (NDIL) began with
a galvanizing line in 1984 and today produces over 3 mt of cold rolling with
nearly 40 percent of galvanizing. It also launched some color coating, India's
first, as unmet demand for consumer durables took off with economic reforms
which have been gradually introduced since the 1980s (personal interview,
NDIL, Calcutta, June 1996).
    With its new 1.6 mt DRI project, NDIL has begun the process of backward
integration. Unlike other modern minimills, NDIL will be also using a blast
furnace, a strategy similar to Korea's POSCO, to produce 1.5 mt of iron and
complement DRI and scrap for its two twin-shell EAFs. Output is expected
to be 3 mt of steel which will be fed into two SMS thin-slab casters. The
adoption of new minimill technology combined with the traditional blast
furnace indicates an innovative approach to steelmaking. Blast furnace iron
is of higher quality and hence its products are likely to meet stringent market
requirements for flat products. To ensure success, NDIL has reproduced
NUCOR's Hickman plant layout and Crawfordsville's product quality (Berry


                                         Dolv! DRI plant

          Sidbec-Dosco                                                    PTlspat
         Montreal, Canada                                           Surabaya. Indonesia
          bar, sheet, rod                                             wire rodslbillets
          2 Midrex(1994)

                                                                      Caribbean Ispat
      Stahlwerke, Hamburg
                                                                     Trinidad 2 x Midrex
        wire rod, 1 Midrex

                                                                   Mexico(slabs 4 hyL
       IspatIrish, Ireland                                              modules)
        blooms, medium                                              1 Midrex (1992-3)
        structurals (1995)

                     Ispat Karmet, Kazakhstan                          Others
                            sheet, 5 BFs                      Collaboration withKobe
                         3 BOFs, 2 OHFs                            for MidrexDRI
                               (1996)                         lspat Shipping (4 ships)

Figure 7.3 Ispat 's ex pand ing steel bu siness
Sources: New Steel, various issues; Narayan (1996); person al interview, Nippon Dem o Ispat,
Calcutta, July 1996
Note: a Its most recent acqu isition was Inland Steel of the US in 1998. Sale not finalized.

1995 ). NDIL's DRI plant ha s exceeded the designed capacity of 1.0 mt, makin g
it a reference plant for Midrex, th e DRI technology supplier. Thi s approach
to imitating th e best-practice standa rds is revolution ary in th e Indi an context ,
wh ere shortages have always favor ed sellers and quality of pro duct rarel y
ha s been an imp ortant issue.
    Severa l technological development s reveal a new kind of entrep reneurship
in India that is inn ovati on-based: combining existing techn ologies with new
ones and emulating best-pract ice sta ndards. For exa mple, Essar link s DRI
with EAFs. Th e Essar Gro up also boa sts th e world's largest gas-based HBI
plant with do wn str eam op erations of 2 mt of hot-rolled coils. It has also
begun backward integrati on by undert aking th e pr oduction of iron oxide
pellets used for making HB!. Its steel op eration has Level II auto ma tio n,
indicating a computerized system for pr ocess and product controls. Ano ther


Indian firm-Jindal Vijaynagar-has adopted the COREX process to feed
hot metal into basic oxygen furnaces. As a first user of COREX in the Indian
market, Jindal is well positioned to exploit commercial benefits that the new
innovation offers. Thus it went in for a large plant with two COREX modules.
Combining new and established processes is a sign of technological confidence
and commercial acumen. 14
   With new innovations and the entrepreneurial bent of some of the Indian
firms the global industry has entered another round of reorganization. For
example, the Indian industry is poised for a new round of capacity expansion
with a variety of steel technologies (see Figure 7.4). Of the nine projects,
with a total slated capacity of 13 .625 mt and with average investment cost
of $757/ton, virtually all of them will be adopting the traditional BF-BOF
route (personal interview, M .N.Dastur and Co., Calcutta, June 1996). Five
of the nine projects, with a combined capacity of 11.6 mt, are designed to
produce hot-rolled coils, a typical integrated mill's output. With higher
prices for power and risky large-scale plants, most firms are going the BF-
BOF route but in several cases using considerably smaller blast furnaces,
with designs imported from China (see D'Costa 1998a). Comparative cost
analysis shows that smaller blast furnaces are competitive with the traditional
large ones (Sengupta 1995:50). For example, capital cost for a blast furnace
with 157 m! was Rs 5,2701ton while a blast furnace with 2,000 rn ! cost Rs
5,282/ton. However, total investment would be Rs 1.24 billion versus Rs
6.55 billion, making smaller furnaces an attractive technological option."
The recent restructuring of the Indian steel industry is a good illustration of
different responses to new innovations in a path-dependent fashion. It is
also an outcome that stems in large measure from the changing institutional
   Different institutional environments spawned different minimill
trajectories in the US, Japan, Korea, and India . While past government
policies in Japan, Korea, Brazil, and India favored the development of the
integrated segment, minimills in the US could exploit the opportunities that
arose from the inflexibility of US integrated producers. Unlike other
industries in other countries, American minimill producers emerged as the
industry trendsetters, taking advantage of technological breakthroughs in
entrepreneurial fashion. This is in stark contrast to the technological
conservatism exhibited by US integrated producers. Similarly, with the
dismantling of state controls, new entrepreneurs in India are leading the
industry with new technologies. This too is a significant deviation from the
rent-seeking private EAF operators of the 1970s and 1980s in India. In
Japan the dominance of the integrated sector and the curious relationship
between it and its EAF affiliates have impeded the diffusion of new
generation technologies. Only autonomous action by renegade firms has
slightly altered the technological make-up of the Japanese industry. The
Korean industry has also been innovative, but paradoxically, apart from


(   Gas
                                                             4    5

(   Coal

                                                                                  To casting etc.

Figure 7.4 Planned new plants and new technologies in India
Sources: Sengupta (19 95); personal int erviews, Calcutta, M umb ai, June-July 19 96
No tes:
1 1.02mt(Daitari )
2 0.5 rnt (severa l)
3 0.97 rnt (Hazira)
4 0.4 75 rnt (Haz ira)
5 0.4 75 rnt (Bilaspur)
6 0.55 rnt (Da ita ri)
Dkledirectly reduced iron ; EAF=electric arc furn ace; BF=blast furn ace; BOF=b asic oxygen
furn ace

on e private firm, the state firm has taken th e lead in introducing almost all
of the small-scale innovations in the steel industry.

                Minimills and new institutional arrangements
An und erstanding of the steel industry restructuring process would be incomplete
without accounting for som e of the institutional changes accompanying new
innovations. We have already witnessed a reduced role of the state in the larger
economy and in the integrated steel sector. Brazil first spearheaded a major
reorganization of the state-owned industry by privatizing it. We also find that,
in addition to flexibility and entrepreneurship based on smaller size of operations,
minimills have instituted a fundamentally different kind of industrial relations.
Both the reduced role of the state and cooperative industrial relations mirror


the trends in the larger capitalist order. Many authors suggest that new industrial
relations characterizing the US minimill segment have contributed to the success
of minimill performance (Smith 1995). In many ways these institutional
arrangements reflect the cooperative relations found between Japanese
management and labor (Florida and Kenney 1992; see D'Costa 1998b, 1998c).
More specifically, the smaller scale of EAF units and therefore the smaller
workforce is amenable to non-Tayloristic industrial relations. The production
process is relatively simple and the plants are highly automated. Consequently,
the need for detailed division of labor has become technically superfluous and
from the workers' point of view politically redundant. The new minimills offer
lower hourly wages than their integrated counterparts, but when bonuses are
added workers' earnings are considerably higher. In the 1980s, minim ill workers
earned between 77 and 92 percent of the wages of integrated producers (Barnett
and Crandall 1986:22; US International Trade Commission 1987a:59).
   Greater responsiveness and participation characterize industrial
relations. The small scale of operations is conducive to cooperative
worker-management relations and has evoked trust-based institutional
arrangements. For example, in the US, NUCOR's Hickman plant and Steel
Dynamics' plant have only 325 and 260 employees respectively. The
management in turn has decentralized decision-making in favor of shop-floor
operators, making the entire minimill organizational set-up less hierarchical.
The net contribution of a leaner production system has been very high
productivity and greater worker morale."
   In the US context, the legacy of adversariallabor-management relations
found in the traditional integrated segment is noticeably absent in the new
generation minimills. Their small size and their dependence on scattered scrap
sources has made their location independent of the traditional industrial
heartland. American minimills, not surprisingly like the Japanese auto
transplants, have tended to locate in semi-urban areas. Their greenfield status
has also enabled minimill owners to locate away from unionized areas. More
than half of minimill workers are not unionized. Their age structure is also
different from integrated units: they are young, generally recruited locally,
with little industrial background, and possess no bargaining experience.
Notwithstanding contract workers in many areas of production, minimill
employees work within more egalitarian structures than those in the traditional
integrated segment. 17 With the rapid expansion of minimill output, earnings
differences arising from different wage rates in minimill and integrated sectors
are generally made up by bonus payments. For example, recent base pay in
minimills was $7.5 3/hour compared to the integrated rate of $l1.13/hour.
However, with bonus payments a typical minimill worker could earn around
$50,000 per year. Since bonus payments depend on total output and the
bonus is the same for everyone, it is always in the interest of workers to
cooperate to ensure uninterrupted production. 18


   Cooperation between labor and management and among workers, made
possible by flatter management, has contributed to rising productivity. Gallatin
Steel, a new generation minimill, has only three layers of workers, comprising
senior management, operations, and hourly employees. Supervision is nominal
in most minimills. Of the 204 total Gallatin employees, only ten are in senior
management and twenty-four under operations, while nearly half of the hourly
workforce is comprised of engineers or those who have two years of
engineering training. With more employees sharing a similar technical
background, teamwork is relatively common. Even non-minimills are
beginning to accept the work culture of EAF units. ACME Steel, an integrated
steel company in the US, has introduced greater worker autonomy in its thin-
slab plant (Ritt 1997). Of the 150 total workers, 132 are hourly employees,
sharing team-based work. ACME has only four job classes. With less hierarchy,
decision-making has been quicker as well.
   With flexible industrial relations, the economic and technological
performance of minimills, not surprisingly, has been spectacular (Barnett
and Crandall 1986; Smith 1995). For example, US minimill productivity
was roughly twice that of integrated production. In 1985 it took 2.4
workerhours in a minimill to produce a ton of wire rod compared to five
workerhours in an integrated facility (Barnett and Crandall 1986:21 ). More
recent estimates put the new generation of minimill productivity at 0.5 or
fewer worker-hours per ton of hot-rolled coil (Ritt 1995b). Productivity at
the NUCOR's Hickman plant has steadily increased from 0.8 worker-hours
per ton to 0.4 in 1995; it is expected that this will be matched by Steel
Dynamics. The ability to produce flat products with low labor inputs is a
technical achievement that was not expected by US and Japanese integrated
producers. The entrepreneurial breakthrough of thin-slab casting combined
with new forms of industrial relations have contributed to the commercial
success of minimills. Consequently, the pressure on US integrated producers
to increase their productivity has also mounted. With new technologies
breaking down entry barriers and reducing operating costs, minimills are
poised to contribute significantly to the reorganization of the global steel

               Conclusion: new technologies and industrial
The emergence of new steel technologies demonstrates the difficulty of
maintaining a monopoly over the market. Minimills around the world have
become serious contenders in steel production. This development fits the
Marxian and Schumpeterian dynamics of capitalist competition in which
technology is a powerful tool to enter existing and new markets. EAF
innovations have contributed to the competitiveness of minimills. With
expanding EAF capacity, the integrated segment in the US and Japan is


management's desire to avoid antagonistic labor-management relations,
which are typical of integrated mills.

            From passivity to entrepreneurial breakthroughs
Technological breakthroughs in a changing institutional context have also
introduced a new round of steel industry restructuring. It is easy to see why
minimills became a new force in the American steel industry. The costly
technology and financial crisis of US integrated production, combined with
poor location and import competition, made small-scale EAF production
attractive. Also, initial production was confined to low value-added long
products where quality requirements were less stringent. However, minimills
have also had their share of difficulties, especially older mills producing
simple billets for wire rods. Until recently EAF production in the US, Japan,
and India has been peripheral to integrated production. However, unlike
the independent role played by US producers, minimills in India and Japan
have been less autonomous from other producers. For example, numerous
small mills in India relied on the state sector for semi-finished steel for
rerolling, while in Japan a number of minimills are controlled by integrated
   The staunchest supporters of modern EAF mills are independent
American minimill firms (Table 7.6). The Japanese, despite their
enthusiasm for new innovations, such as the BOF and continuous casting,
are far behind US firms in modern minimill technology. " The Japanese
industry's lag in minimill technology has been due to the strength of the
integrated segment as well as stringent customer demands, making thin-
slab casting output less acceptable (personal interview, Japan Iron and
Steel Federation, Tokyo, December 1996). Globally, the industry leader
in the minimill segment has been US-based NUCOR. Led by an
entrepreneurial Kenneth Iverson, NUCOR in 1989 established the world's
first thin-slab casting plant in Crawfordsville, Indiana (see Preston 1991) .
NUCOR has expanded its capacity with two new mills, one at Hickman,
Arkansas, and the other at Berkeley, South Carolina. Gallatin Steel, a 50-
50 joint venture with Canadian Dofasco, has also introduced this
technology at its Kentucky plant. In the mid-1990s, of the fifty-two thin-
slab minimill projects in the world that were either in operation or under
consideration, sixteen projects, or nearly a third of total capacity, was
slated to be in the US (Hogan 1994:82-3). In the last ten years nearly 20
mt of flat-rolled minimill capacity in the US has been added.
   Outside the US the diffusion of modern EAF thin-slab technology, though
limited, has been picking up. Korea has two projects in place that have
introduced hybrid technologies, such as the DRI with the COREX and BF-
based thin-slab casting. Diffusion of these technologies is conspicuously absent
in Brazil and Japan, even if Japanese firms, such as Nippon Steel and Nippon


Table 7.6 Diffu sion of new minimill techn ology in the US

Year          Firm!location                      Steel-       Hot-          Slabcaster supplier
                                                 making       rolling
                                                 capacity     capacity
                                                 (million     (mil/ion
                                                 tons)        tons)

1. 1989       NUCOR,                              1.8         1.8           SMS
    1994      Crawfordsville, Ind iana                                      SMS
2. 1992       NUCOR, Hickman,                     2.2         2.2           SMS
    1994      Arkansas
3. 1995       Gallatin, Kentucky        1.2                   2.0           SMS
    (1998)"                            (2.0)
4 . 1996      Ipsco, Iowa               1.0                   1.0           Mannesman Dernag
5. 1996       Northsrar, BHP, Ohio      1.5                   1.5           Sumitomo
6. 1995       Steel Dynamics , Indiana  0.9                   2.0           SMS
    (1999)"                            (2.0)
7. 1997       NUCOR, Charleston, South 1.8                    1.8           SMS
8. 1997       Trico Steel, Alabama      2.2                   2.2           Sumitomo
    1992-7 Expansion by 7 Brownfield                          3.6

Sources: New Stee l (April 1996:41 a nd Decem ber 1 994 :3 7 ); Hall (1 99 7:2 36-7)
a Target year for exp anded cap acity (figures in parentheses )
Tota l of 8 greenfield proj ects-1 2 .6 rnt capacity (d uring 19 89-9 7 )

Kok an , are major supp liers of EAF units. The strength of Japanese integra ted
producers and th e hu ge ca pacity alrea dy in place have imp eded th e ado ptio n
of new EAF technology in Japan . Tokyo Steel, an independent firm, has
introduced new EAF ca paci ty but with conventiona l casting. Similarly, in
Brazil the availability of high-quality ore and the need to consolidate integrated
production after priva tizatio n have damp ened th e need to create new EAF
cap acity.
   Like NUCOR, severa l enterp rising firm s fro m th e US, Ind ia, and Korea
have exhibited an entrep rene uria l strea k bent on comp eting with integra ted
firms in th e flat sheet markets. Th ey have been aggress ive in ado pting th e
sma ll-scale innova tive techn ologies. For examp le, Ispat Gro up's Indian branch
and H anb o of Kor ea have launched new inn ovati ve production facilities.
Dubbed th e NUCO Rs of Asia, Tokyo Steel and H anb o are seen as maverick
firm s (Berry 1996 ). Rather th an tow th e line of large integrat ed firm s in
restr aining capacity growth, th ese two independent firm s invested heavily in
recent inn ovati on s to cap ture part of th e flat pr odu cts mar ket. H anb o opted
for a new minim ill (it alrea dy had one) using sta te-of-the-art techn ologies
after an earlier requ est to set up an integrat ed mill to capture th e growing
Korean steel ma rket was rejected by th e govern ment. In th e course of two


and a half years, Hanbo planned for five EAFs, two SMS thinslab casting
machines, two Sumitomo conventional casters, two COREX plants, and one
DRI plant.'? Similarly, the Mittal family of Ispat Group overcame domestic
restrictions by setting up a mill outside India and over time purchased several
foreign steel operations to become one of the largest steel companies in the
world. The company has also combined minimill innovations with the
traditional blast furnace in a recent greenfield project. Such entrepreneurial
behavior, best illustrated by NUCOR, is also exhibited by minimill producer
Tokyo Steel, the first Japanese EAF firm to produce hot coil, hitherto a
monopoly of the integrated segment.
    The earlier innovative behavior of the Japanese integrated firms has not
been replicated by the minimill sector because of the peculiar interfirm
institutional arrangements. A sizable number of minimills is owned by the
integrated firms. This atypical industry structure is reflective of the kereitsu
relationships typical among large Japanese enterprises. For example, minimills
such as Toa Steel, Godo Steel, and Kyoei Steel are part of NKK, NSC, and
Kobe integrated companies respectively (personal interview, Japan Iron and
Steel Federation, Tokyo, December 1996). In many cases integrated steel
producers manufacture the electric furnaces which they supply to their
affiliated minimill firms. Thus it is not surprising that even though the Japanese
EAF segment is the world's largest-absolutely and relatively-the sector
has not exhibited the same kind of dynamism as American firms. 11 This group
strategy is illustrated by transferring NKK's H-beam production to a new
plant operated by Toa Steel, an affiliate of NKK (personal interview, NKK,
Tokyo, December 1996). The implication of such an institutional arrangement
is an orderly expansion of capacity and adjustment to excess capacity by
large firms and, by default, by their affiliates. Ironically, it has had a dampening
effect on innovative behavior.
    Notwithstanding the cartel-like arrangements among integrated and
minimill firms, excess capacity, as we saw in Chapter 4, has been unavoidable.
Prior to the major round of restructuring by the big enterprises in the 1980s,
the Japanese minimill segment had already undergone painful adjustments in
the 1970s. Expansion of both the integrated and minimill segments during
the high-growth era, followed by the energy crisis, resulted in overcapacity in
the Japanese steel industry. New capacity added by independent EAF
operators, such as Tokyo Steel, posed a whole new threat to the stability of
the steel market in japan (see Uriu 1989). Competition was severe in the long
products market, and older, smaller minimills had to absorb the brunt of
industrial restructuring. By 1978 nearly a third of EAF capacity was over
fifteen years old, in 1987 over half (Uriu 1989:93). The appreciation of the
yen eroded the profitability of Japanese firms as a whole but minimills were
particularly hard hit. The restructuring of this segment was inevitable (see
Table 7.7). Minimill firms were consolidated and almost half the furnaces
were scrapped or decommissioned. Overall EAF capacity, however, increased,


Table 7.7 Restructuring of the Japanese minimill sector

                   No.offirms        No. offurnaces      Total capacity     Employment
                                                         (million tons)

1978               69                146                 20.79              36,400
1983               58                115                 25.98              30,600
1987               56                 93                 27.50              19,300

Source: Uriu (1989:90)

as new furn aces with lar ger ca pa cities were insta lled and inde pendent firm s
like Tokyo Steel entered th e mark et in a big way. Such persistent excess capacity
in th e Jap an ese in dustry in jecte d additio na l restruct uring pr essures.
    Tok yo Steel's refu sal to restrain ca pa city an d outp ut as dictat ed by th e
integ ra ted secto r created m ajor ind ustry regul at ion problems. Tokyo Steel
does n ot belon g to any ke reitsu gro up nor is it a member of th e influential
Jap an Iron and Steel Federat ion .P Not heeding th e indus try's counsel, Tok yo
Steel in 1991 entere d th e flat steel m arket . Co nse q uently, it ex pa nded its
m arket sha re by comp eting aggressive ly with th e Jap an ese integra ted segment
as well as with imp orts, albeit init ially at th e low- valu e end. Tok yo Steel 's
threat was serio us enough to m ak e Ni ppo n Steel exercise its market clout.
Indu stry so urces rep orted th at in the past N ippo n Steel had in structed
influentia l Jap an ese tr ad ing compan ies (integra l to th e kereitsu system) not
to sell Tok yo Steel's o utput (see Berr y 19 96 ).
    Stra tegi c ex po rting of scra p by Ni ppo n Steel raised domest ic scra p pric es,
thus p utting Tok yo Steel, a major user of scra p for its o pera tions , in an
unc ompetitive position. Similarly, NSC's selling of pig iro n to its minimill
affiliates but not to Tokyo Steel is n ot only a good ind icat or of th e fierce
compet ition bet ween integ ra ted compan ies and inde pen dent minimill s but is
also indicative of th e threat posed by Tok yo Steel. In 19 95 , Tok yo Steel paid
h igh pric es: $145 /to n for scra p and $165/to n for pig iro n. This has been th e
price paid by th e ind ependent compan y for not submitt ing to th e industr y-
im pose d regul at or y measures to coor din ate output and pr ices.
    The ado ption of new minimill technologies is intrinsically linked to business
strategy. For example, the Japanese steel indu stry, dominated by a technologically
efficient int egr at ed segme nt, has been slow to introduce sta te -of-the -art
minimills. Even maverick firms like Tok yo Steel have not introduced th e full
ensemble of new minimill techn ology, fearin g possible pro duct qu ality problems
in a highly demanding Japanese market (perso na l interview, Japan Iron and
Steel Federati on, Tokyo, December 1996 ). Similarly, PO SCO's big presence
has limited th e diffusion of second-genera tio n minimill technologies in Korea.
Amo ng th e private secto r firm s, only H anb o has ado pted new technologies.
Other firms such as Inchon Steel, an EAF affiliate of th e gia nt H yundai


conglomerate, have been more cautious. They have not been confident about
Hanbo's minimill expansion nor the COREX process (personal interview,Inchon
Iron and Steel Co., Inchon, August 1995).13 Paradoxically, POSCO, as the
handmaiden of national industrial development, has proceeded to install new
innovations, its monopoly and global competitiveness notwithstanding. At its
Pohang plant, POSCO has installed a COREX unit and in its Kwangyang site
two thin-slab casting EAF units . POSCO's technology strategy has been to
satisfy immediate domestic shortages of hot-rolled coil, which these processes
can quickly meet in a less expensive way than integrated production. More
importantly, experimenting with new technologies at this time is expected to
prepare it well for the next decade when several of POSCO's blast furnaces
and coke ovens will be retired. This far-sighted approach to innovation reveals
that a state-owned integrated firm can be equally entrepreneurial.
    Entrepreneurial investments in the Indian steel industry grew out of the
inability of state-owned integrated units to meet domestic demand. The
government promoted EAF units; however, initial capacity was limited to
0.25 mt. With economic reforms, India's Ispat Group broke through the
entrepreneurial inertia to orchestrate a global firm with 12.5 mt of steel
capacity. Already the Group has 18 percent of global DRI production. Like
its entrepreneurial counterparts in the US, Korea, and Japan, the Ispat Group
is engaged in new minimill technology. Today Ispat is far more
internationalized than most steel firms. Its recent acquisitions include
steelmaking and DRI plants in Trinidad and Tobago, Mexico, Canada, and
Germany. It has steel operations in Indonesia, its first overseas venture, and
several facilities in India (Figure 7.3).
    In systemic terms, this innovative behavior signals the growing maturity
of Indian capitalists and the increasing technological capability of the steel
industry. Other Indian firms have also been innovative. For example, the
Mittal family's Indian operation Nippon Demo Ispat Ltd (NDIL) began with
a galvanizing line in 1984 and today produces over 3 mt of cold rolling with
nearly 40 percent of galvanizing. It also launched some color coating, India's
first, as unmet demand for consumer durables took off with economic reforms
which have been gradually introduced since the 1980s (personal interview,
NDIL, Calcutta, June 1996).
    With its new 1.6 mt DRI project, NDIL has begun the process of backward
integration. Unlike other modern minimills, NDIL will be also using a blast
furnace, a strategy similar to Korea's POSCO, to produce 1.5 mt of iron and
complement DRI and scrap for its two twin-shell EAFs. Output is expected
to be 3 mt of steel which will be fed into two SMS thin-slab casters. The
adoption of new minimill technology combined with the traditional blast
furnace indicates an innovative approach to steelmaking. Blast furnace iron
is of higher quality and hence its products are likely to meet stringent market
requirements for flat products. To ensure success, NDIL has reproduced
NUCOR's Hickman plant layout and Crawfordsville's product quality (Berry


                                         Dolv! DRI plant

          Sidbec-Dosco                                                    PTlspat
         Montreal, Canada                                           Surabaya. Indonesia
          bar, sheet, rod                                             wire rodslbillets
          2 Midrex(1994)

                                                                      Caribbean Ispat
      Stahlwerke, Hamburg
                                                                     Trinidad 2 x Midrex
        wire rod, 1 Midrex

                                                                   Mexico(slabs 4 hyL
       IspatIrish, Ireland                                              modules)
        blooms, medium                                              1 Midrex (1992-3)
        structurals (1995)

                     Ispat Karmet, Kazakhstan                          Others
                            sheet, 5 BFs                      Collaboration withKobe
                         3 BOFs, 2 OHFs                            for MidrexDRI
                               (1996)                         lspat Shipping (4 ships)

Figure 7.3 Ispat 's ex pand ing steel bu siness
Sources: New Steel, various issues; Narayan (1996); person al interview, Nippon Dem o Ispat,
Calcutta, July 1996
Note: a Its most recent acqu isition was Inland Steel of the US in 1998. Sale not finalized.

1995 ). NDIL's DRI plant ha s exceeded the designed capacity of 1.0 mt, makin g
it a reference plant for Midrex, th e DRI technology supplier. Thi s approach
to imitating th e best-practice standa rds is revolution ary in th e Indi an context ,
wh ere shortages have always favor ed sellers and quality of pro duct rarel y
ha s been an imp ortant issue.
    Severa l technological development s reveal a new kind of entrep reneurship
in India that is inn ovati on-based: combining existing techn ologies with new
ones and emulating best-pract ice sta ndards. For exa mple, Essar link s DRI
with EAFs. Th e Essar Gro up also boa sts th e world's largest gas-based HBI
plant with do wn str eam op erations of 2 mt of hot-rolled coils. It has also
begun backward integrati on by undert aking th e pr oduction of iron oxide
pellets used for making HB!. Its steel op eration has Level II auto ma tio n,
indicating a computerized system for pr ocess and product controls. Ano ther


Indian firm-Jindal Vijaynagar-has adopted the COREX process to feed
hot metal into basic oxygen furnaces. As a first user of COREX in the Indian
market, Jindal is well positioned to exploit commercial benefits that the new
innovation offers. Thus it went in for a large plant with two COREX modules.
Combining new and established processes is a sign of technological confidence
and commercial acumen. 14
   With new innovations and the entrepreneurial bent of some of the Indian
firms the global industry has entered another round of reorganization. For
example, the Indian industry is poised for a new round of capacity expansion
with a variety of steel technologies (see Figure 7.4). Of the nine projects,
with a total slated capacity of 13 .625 mt and with average investment cost
of $757/ton, virtually all of them will be adopting the traditional BF-BOF
route (personal interview, M .N.Dastur and Co., Calcutta, June 1996). Five
of the nine projects, with a combined capacity of 11.6 mt, are designed to
produce hot-rolled coils, a typical integrated mill's output. With higher
prices for power and risky large-scale plants, most firms are going the BF-
BOF route but in several cases using considerably smaller blast furnaces,
with designs imported from China (see D'Costa 1998a). Comparative cost
analysis shows that smaller blast furnaces are competitive with the traditional
large ones (Sengupta 1995:50). For example, capital cost for a blast furnace
with 157 m! was Rs 5,2701ton while a blast furnace with 2,000 rn ! cost Rs
5,282/ton. However, total investment would be Rs 1.24 billion versus Rs
6.55 billion, making smaller furnaces an attractive technological option."
The recent restructuring of the Indian steel industry is a good illustration of
different responses to new innovations in a path-dependent fashion. It is
also an outcome that stems in large measure from the changing institutional
   Different institutional environments spawned different minimill
trajectories in the US, Japan, Korea, and India . While past government
policies in Japan, Korea, Brazil, and India favored the development of the
integrated segment, minimills in the US could exploit the opportunities that
arose from the inflexibility of US integrated producers. Unlike other
industries in other countries, American minimill producers emerged as the
industry trendsetters, taking advantage of technological breakthroughs in
entrepreneurial fashion. This is in stark contrast to the technological
conservatism exhibited by US integrated producers. Similarly, with the
dismantling of state controls, new entrepreneurs in India are leading the
industry with new technologies. This too is a significant deviation from the
rent-seeking private EAF operators of the 1970s and 1980s in India. In
Japan the dominance of the integrated sector and the curious relationship
between it and its EAF affiliates have impeded the diffusion of new
generation technologies. Only autonomous action by renegade firms has
slightly altered the technological make-up of the Japanese industry. The
Korean industry has also been innovative, but paradoxically, apart from


(   Gas
                                                             4    5

(   Coal

                                                                                  To casting etc.

Figure 7.4 Planned new plants and new technologies in India
Sources: Sengupta (19 95); personal int erviews, Calcutta, M umb ai, June-July 19 96
No tes:
1 1.02mt(Daitari )
2 0.5 rnt (severa l)
3 0.97 rnt (Hazira)
4 0.4 75 rnt (Haz ira)
5 0.4 75 rnt (Bilaspur)
6 0.55 rnt (Da ita ri)
Dkledirectly reduced iron ; EAF=electric arc furn ace; BF=blast furn ace; BOF=b asic oxygen
furn ace

on e private firm, the state firm has taken th e lead in introducing almost all
of the small-scale innovations in the steel industry.

                Minimills and new institutional arrangements
An und erstanding of the steel industry restructuring process would be incomplete
without accounting for som e of the institutional changes accompanying new
innovations. We have already witnessed a reduced role of the state in the larger
economy and in the integrated steel sector. Brazil first spearheaded a major
reorganization of the state-owned industry by privatizing it. We also find that,
in addition to flexibility and entrepreneurship based on smaller size of operations,
minimills have instituted a fundamentally different kind of industrial relations.
Both the reduced role of the state and cooperative industrial relations mirror


the trends in the larger capitalist order. Many authors suggest that new industrial
relations characterizing the US minimill segment have contributed to the success
of minimill performance (Smith 1995). In many ways these institutional
arrangements reflect the cooperative relations found between Japanese
management and labor (Florida and Kenney 1992; see D'Costa 1998b, 1998c).
More specifically, the smaller scale of EAF units and therefore the smaller
workforce is amenable to non-Tayloristic industrial relations. The production
process is relatively simple and the plants are highly automated. Consequently,
the need for detailed division of labor has become technically superfluous and
from the workers' point of view politically redundant. The new minimills offer
lower hourly wages than their integrated counterparts, but when bonuses are
added workers' earnings are considerably higher. In the 1980s, minim ill workers
earned between 77 and 92 percent of the wages of integrated producers (Barnett
and Crandall 1986:22; US International Trade Commission 1987a:59).
   Greater responsiveness and participation characterize industrial
relations. The small scale of operations is conducive to cooperative
worker-management relations and has evoked trust-based institutional
arrangements. For example, in the US, NUCOR's Hickman plant and Steel
Dynamics' plant have only 325 and 260 employees respectively. The
management in turn has decentralized decision-making in favor of shop-floor
operators, making the entire minimill organizational set-up less hierarchical.
The net contribution of a leaner production system has been very high
productivity and greater worker morale."
   In the US context, the legacy of adversariallabor-management relations
found in the traditional integrated segment is noticeably absent in the new
generation minimills. Their small size and their dependence on scattered scrap
sources has made their location independent of the traditional industrial
heartland. American minimills, not surprisingly like the Japanese auto
transplants, have tended to locate in semi-urban areas. Their greenfield status
has also enabled minimill owners to locate away from unionized areas. More
than half of minimill workers are not unionized. Their age structure is also
different from integrated units: they are young, generally recruited locally,
with little industrial background, and possess no bargaining experience.
Notwithstanding contract workers in many areas of production, minimill
employees work within more egalitarian structures than those in the traditional
integrated segment. 17 With the rapid expansion of minimill output, earnings
differences arising from different wage rates in minimill and integrated sectors
are generally made up by bonus payments. For example, recent base pay in
minimills was $7.5 3/hour compared to the integrated rate of $l1.13/hour.
However, with bonus payments a typical minimill worker could earn around
$50,000 per year. Since bonus payments depend on total output and the
bonus is the same for everyone, it is always in the interest of workers to
cooperate to ensure uninterrupted production. 18


   Cooperation between labor and management and among workers, made
possible by flatter management, has contributed to rising productivity. Gallatin
Steel, a new generation minimill, has only three layers of workers, comprising
senior management, operations, and hourly employees. Supervision is nominal
in most minimills. Of the 204 total Gallatin employees, only ten are in senior
management and twenty-four under operations, while nearly half of the hourly
workforce is comprised of engineers or those who have two years of
engineering training. With more employees sharing a similar technical
background, teamwork is relatively common. Even non-minimills are
beginning to accept the work culture of EAF units. ACME Steel, an integrated
steel company in the US, has introduced greater worker autonomy in its thin-
slab plant (Ritt 1997). Of the 150 total workers, 132 are hourly employees,
sharing team-based work. ACME has only four job classes. With less hierarchy,
decision-making has been quicker as well.
   With flexible industrial relations, the economic and technological
performance of minimills, not surprisingly, has been spectacular (Barnett
and Crandall 1986; Smith 1995). For example, US minimill productivity
was roughly twice that of integrated production. In 1985 it took 2.4
workerhours in a minimill to produce a ton of wire rod compared to five
workerhours in an integrated facility (Barnett and Crandall 1986:21 ). More
recent estimates put the new generation of minimill productivity at 0.5 or
fewer worker-hours per ton of hot-rolled coil (Ritt 1995b). Productivity at
the NUCOR's Hickman plant has steadily increased from 0.8 worker-hours
per ton to 0.4 in 1995; it is expected that this will be matched by Steel
Dynamics. The ability to produce flat products with low labor inputs is a
technical achievement that was not expected by US and Japanese integrated
producers. The entrepreneurial breakthrough of thin-slab casting combined
with new forms of industrial relations have contributed to the commercial
success of minimills. Consequently, the pressure on US integrated producers
to increase their productivity has also mounted. With new technologies
breaking down entry barriers and reducing operating costs, minimills are
poised to contribute significantly to the reorganization of the global steel

               Conclusion: new technologies and industrial
The emergence of new steel technologies demonstrates the difficulty of
maintaining a monopoly over the market. Minimills around the world have
become serious contenders in steel production. This development fits the
Marxian and Schumpeterian dynamics of capitalist competition in which
technology is a powerful tool to enter existing and new markets. EAF
innovations have contributed to the competitiveness of minimills. With
expanding EAF capacity, the integrated segment in the US and Japan is


gradually moving out of long products and accommodating minimill
production of low-end flat products.
    The development and diffusion of the thin-slab caster has been a major
factor in the reorganization of the American industry. Technological
breakthroughs have been also associated with entrepreneurial dynamism. In
the US, India, and Korea, firms outside of the established integrated segment
have been receptive to new technologies. The dominance of integrated
production combined with state-led development in late industrialization was
broken with technological and commercial initiatives by NUCOR, Ispat, and
Hanbo. Their pioneering efforts in introducing new technologies, whether in
the adoption of thin-slab casting, DRI manufacturing, or combining new
processes such as DRI and COREX with thin-slab casting, have fundamentally
altered the restructuring equation. Far from capacity contraction, as
experienced in the US in the 1970s and early 1980s, global restructuring
recently has entailed capacity expansion in new processes in both early and
late industrializing economies. In line with global trends, the industry is also
witnessing a reduced role for the state. Thus institutional incapacity in India
is now less of an impediment as new generation minimill technology is flexible
enough to warrant private sector production.
    The restructuring of the steel industry based on new technologies is
multifaceted. The emergence of innovations and their diffusion dictate the
direction of industrial reorganization at the global level. The players in the
process tend to change as well. For example, although the industrialized
countries, specifically in Western Europe, continue to control steel
technology, the bankruptcy of innovative capability among US steel firms
is virtually complete. While the diffusion of new technology has been
spearheaded by US firms, especially in the early stages, these firms are outside
the integrated segment's orbit. With their adoption of new technologies
coming much later, the entrepreneurial dynamism of Indian and Korean
firms is probably overstated. With NUCOR pioneering thin-slab adoption,
Hanbo, POSCO, and Nippon Demo Ispat of India could easily rectify any
initial teething problems. Similarly, the adoption of COREX by Jindal of
India following POSCO's footsteps was also well timed. Late entry-but
not too far behind the pioneers-does have its advantages for innovative
behavior. However, firms from developing countries are also contributing
technologically to the innovative process. The entrepreneurial breakthroughs
in DRI production and the systematic capture of the benefits of industrial
integration by smaller firms from the developing world have had an impact
on the restructuring process. Almost by default, the maturity of steel markets
in the industrialized world, followed by large-scale restructuring, introduced
an opportunistic momentum which entrepreneurs have seized upon. In that
sense structural barriers to new technologies are not as daunting as they
might appear to be.
    New technologies have also coincided with changing institutional


arrangements for capitalist regulation. From the self-regulating system of the
large US integrated firms to the state-sponsored industrial coordination in
Japan, India, Brazil, and Korea, the industry has witnessed both an increased
and a reduced role for the state. In the US protectionist policies were set in
motion when imports became a major problem. In other countries, the industry
has been partially freed from restrictive state controls, with some countries,
such as Brazil, privatizing the state-owned industry. The net result of the long
process of restructuring has been the industry's rejuvenation with new
innovations and institutional change. The competitive strengths of private
capital in the minimill segment have shaken the complacency of the
oligopolistic integrated segment. Capitalist regulation has become more
market-determined, even if state ownership in Korea and India and the
dominance of the integrated sector in Japan and Brazil continue to wield
economic clout. Smaller firms have been aided by technological changes in
the EAF segment. Today minimill firms exhibit a versatility in adjusting to
competitive pressures that integrated firms could only dream of. No longer
are steel operations dictated by particular locational advantages. They can
be established close to scrap sources, which is virtually any major
urbanindustrial center. Where scrap is scarce the use of DRI can be substituted.
More importantly, minimill flexibility has been possible because of cooperative
industrial relations. A smaller but highly trained workforce, with significant
decentralization of decision-making, has given minimills a competitive edge.
Capitalist regulation in the broader sense is no longer based on entrepreneurial
initiatives and joint action by firms. It is also based on the partnerships forged
between management and workers.
    The development of new technologies and the ensuing restructuring of
the steel industry indicates the on-going nature of the process. It underscores
the importance of strategic investment in technology in capitalist
competition. More importantly, the global reorganization of steel production
demonstrates the institutional bearing on the process. The large-scale
technological paradigm associated with integrated production is also a
hallmark of capitalist regulation based on vertically organized enterprises,
big governments, and antagonistic labor relations. The emergence of
minimills and other related smaller technologies is indicative of a more
flexible production system, regulated more by the competitive conditions
in the capitalist marketplace and less by sheer market power. For all the
structural impediments present in the world economy, faced mostly by
developing countries and compounded by institutional incapacity, the
diffusion of new generation steel technologies in late industrializing countries
promises to provide a window of opportunity for capitalist industrialization.
It introduces an element of uncertainty in the larger restructuring process
as smaller, versatile technologies with reduced entry barriers provide a fertile
ground for potential leap-frogging even in countries not endowed with
capital resources and institutional capacity.


   The responses of firms operating under the capitalist imperative have
been different over time. For example, while the Japanese enthusiastically
embraced the BOF in the 1950s and 1970s, restructuring of the industry
was ultimately led by the conservative US industry. In the 1980s and 1990s,
while the Japanese were slow to introduce new minimill technology,
American firms have been quite aggressive in technology strategy. This
reversal of strategies, with entrepreneurial energies unleashed by Indian
firms in an environment of institutional incapacity and international
insularity, marks a new turning point in the restructuring process. The
continuing shift in steel production capability from the industrialized to
developing countries is definitive if not unidirectional. It is also modulated
by the specifics of technological change, filtering the diffusion process with
new institutional arrangements and entrepreneurial responses to
technological change in a path-dependent fashion.


I have interpreted th e on-going restructuring of th e steel industry as a result
of institutional responses to changing circumstances. Rather than view th e
process as an outcome of market forc es, I have tried to demonstrate that at
the heart of industrial reorganization ar e innovations. My interpretation
neither disputes th e centrality of economic forces in the restructuring process
nor does it reject the logic of the market. After all, commercial motives driv e
a significant portion of innovative activity. However, as I have shown, the
process of innovation, which includes diffusion, has been driv en by non-
economic as well as non-market mechanisms. Under capitalist competition
firms and states intervene strategically-for commercial ends and to transform
national economies. Once this institutional dimension is introduced into the
explanation of the restructuring process (both firms and states are institutions),
a number of questions follow. For example: How does technological change
take place? Why ar e changes introduced? What is the nature of the diffusion
process? What kind of intervention has been carried out and by whom? and
How successful have they been? All ar e issues that ar e intimately linked to
the restructuring process. By addressing these questions at the system and
industry levels we obtain not only a rich understanding of the restructuring
process but also push the intellectual enterprise beyond narrow disciplinary
boundaries. The intricate connection between "animal spirits" on th e part of
capitalists and the larger political setting justifiably makes an institutional
interpretation highly rewarding.
   Th ere are, however, a number of interrelated issues pertaining to the
restructuring process that deserve further elaboration. I discuss three of them
briefly, at the macro-systemic and the micro-industry levels. The purpose is
less to elucidate and more to underscore the open-endedn ess of th e capitalist
system, its resilience, despite periodic crisis, and the heterogeneity of the
industrialization ex perience. Based on the em pirical materials presented in
this study, I first examine the relation between capitalist industrialization in
the post-war period and its implications for the future. Second, I look at


institutional change as it has unfolded with the industry's restructuring. Finally,
I examine possible innovations and industry strategy that may continue to
shape the international division of labor.

               Restructuring and capitalist industrialization
At the core of my interpretation of the restructuring of the steel industry lies
the link between institutions and their responses to technological change.
Innovations and their uneven diffusion have been viewed as central to the
process of capitalist development and industrial transformation. The decision
to adopt new technologies is based on firm and state strategy, which in turn
is dependent on the institutional setting and the legacy of past decisions. We
have seen that the strategic delay in the introduction of new technologies by
US firms was influenced by past investments, the oligopolistic structure of
the market, and the relative insulation of the market from international
competition. In late industrializing countries the decision to adopt innovations
was also based on strategy, but one which was significantly determined by
institutional capability. For most developing countries acquiring modern
technologies has been difficult either because their markets could not support
them or because the suppliers from the advanced capitalist countries have
shied away from such markets. As we have seen, the cumulative outcome of
uneven diffusion of technology is varying competitive strength and
consequently the global reorganization of steelmaking capacity.
    There were two sources of the uneven diffusion of technology: the crisis
that plagued the US industry and the rapid expansion of the industry in
Japan and other late industrializing countries. Akin to the rise and fall of
nations, the industry simultaneously witnessed its decline and development
in spatially distinct locations. The crisis was multifaceted, as exemplified
by declining profits, overcapacity, technological obsolescence, and rising
import penetration in the US. The industry's response was equally varied: it
included but was not limited to shutting down plants, undertaking partial
modernization, diversifying into non-steel businesses, and seeking state
assistance. The obvious question that arises from this development is whether
such crisis is imminent in the industrialization process. Based on the
experience of Japan, the answer is yes. The persistent excess capacity, arising
from the herd-like behavior of Japanese firms despite state attempts to
modulate excessive competition, underscores the problems of rapid industrial
    The best case for testing this proposition is Korea. The Korean industry
is also on the threshold of maturity. Based on recent estimates, Korean steel
consumption is already slowing down (Table 8.1) from about 4 percent
annual growth of steel consumption for the rest of the decade to -0.4 percent
for 2011-20. Its exports are also estimated to fall, while its production is
expected to increase before tapering off. Given the recent banking and

Table 8.1 Forecasts of Korean steel ind ustry ('000 to ns of crude steel)

                                                                                           Average growth rate (%)
                                    1995           2000            2010           2020     1996-2000        2001-2010   2011-2020

Domestic consumption (A)           37,306          45,129          50,348         48,848    3.9               1.1       -0.4
Exports                             9,556          12,097          12,600         13,000    4.8             -0.4        -0.3
Total                              46,862          57,226"         62,946         61,848    4.1              1.0        -0.3
Production (B)                     36,772          49,226          53,446         51,848    6.0              0.8        -0.3
Imports                            10,090           8,000           9,500         10,000   -4.5               1.7        0.5
AlB (%)                              98.6           109.1           105.1          106.1
Export share (%)                     26.0            24.6            22.6           25.1

Source : Korea Insti tu te of Ind ustri al Eco nomics a nd Trade (KIET) (19 97)
a pasco 's est ima te wa s 58 .9 mt (pe rso na l communication, pasco , November 1997)

currency crisis in the East and South-East Asian region, consumption in the
short term may fall faster than predicted while aggressive exporting may
have to be adopted to keep up operating rates. In the event of a prolonged
recession, the Korean economy as a whole might be pressed to reorganize
its industry drastically.
    Rapid industrialization and thus industrial maturity comes also at a price,
such as rising labor costs, due to productivity-led wage increases, and an
ageing workforce. In Korea the weakening of authoritarian forces has also
set the basis for greater wage demands. If the Japanese experience is any
indicator (and Korea has been a good emulator of the Japanese approach to
rapid industrialization), we can expect business diversification and cost
reduction through a reduced workforce in the Korean steel industry.' Both of
these measures are already in evidence at POSCO. Between 1992 and 1995,
POSCO reduced its workforce from 24,000 to 20,400 (personal
communication, POSCO, October 1996). Like its Japanese counterparts,
POSCO is also saddled with an ageing workforce, which has contributed to
the rising share of labor costs.' As of 1996, roughly two-thirds of the employees
were between 31 and 50 years of age, while the rest fell in the 18-30 age
group. Korean wages on the whole have been rising rapidly, with steel wages
considerably higher than manufacturing wages. Between 1989 and 1995, the
ratio of labor cost to total steel production cost increased from 9 to 12 percent
(personal communication, POSCO, October 1996). The challenges to the
Korean industry, though not in the same league as the crisis in the US, or for
that matter in Japan, do represent the paradox of rapid industrialization.
Obvious as it may seem, successful capitalist industrialization does sow the
seeds of industrial maturity sooner rather than later.
    However, from a systemic point of view, industrial maturity does not
mean that the crisis is fatal. In fact, it may very well be the basis for capitalist
renewal. The conception behind long waves leads us to expect that a cyclical
downturn will be followed by an upswing. Perhaps more importantly, it is
worth noting that a different sort of crisis besets those countries which are
characterized by weak institutional capability. While the first type of crisis
is an outcome of succ essful industrialization, the second is not. Here the
crisis results from too little industrialization. At the systemic level, capitalism
is a resilient system with crisis acting as a catalyst to regenerate the system.
The American steel industry captures this dynamic rather well. From a
position of dominance the US industry reached a nadir, compounded by the
diffusion of capitalist industrialization elsewhere. In the wake of
restructuring, the industry rejuvenated itself with new innovations and
institutional arrangements. The modern minimill segment with its attendant
entrepreneurial drive and flexible industrial relations has been the
reincarnation of a declining American steel industry. The strength of the
capitalist system is its ability to generate innovations and in this case to
reinvent itself. Capitalist competition, which is a structural requirement for


innovation, is also its weakness, if the earlier response of American integrated
firms to new innovations is any indication. This contradictory dynamic
between crisis and regeneration makes the capitalist system resilient and its
outcomes relatively indeterminate.
   The crisis confronting most countries is not the maturity of their economies.
On the contrary, their problems are due to too little economic activity. The
institutional weakness, resulting from colonial legacy, political fragmentation,
and limited resources have constrained the acquisition and assimilation of
imported technology. All three late industrializing countries-Brazil, India,
and Korea-did overcome the initial barriers to foreign finance and technology.
However, only Korea was able to continue its investment momentum and
build local technological capability by using effectively the imported state-
of-the-art technology and mastering it. The other two countries also expanded
capacity but have been technologically behind Korea and financially in a less
envious position. Obviously, state-led industrialization has its advantages in
establishing industrial capacity. But not every country can exploit the
advantages of lateness, one of which is the assimilation of foreign technologies
for national development. Institutional incoherence in many developing
countries has limited the state's ability to transform the structure of the
economy, creating a state of semi-permanent crisis characterized by low
industrial productivity, underdeveloped technologies, and poor commercial
performance. The resiliency of capitalism at the global level is certainly not a
guarantee of national capitalist development. Only some countries are able
to align themselves favorably with the global economic system. The rest mostly
muddle through the industrialization process.

                   Institutional change and restructuring
For the most part, restructuring in this study has been interpreted as an
outcome of responses by firms and states to changing technology. However,
if cumulative causation is typical of large-scale social change, we cannot
assume the constancy of institutions. There are feedback loops in the
capitalist system. Assuming at least a modicum of agency in a highly
structured capitalist system, institutional change, though slow, does take
place. This interpretation is in keeping with the Regulation School, which
identifies capitalist crisis as a crisis of institutions and calls for institutional
change to overcome the crisis. At the systemic level institutions evolve but
they also change due to the intervention of political agency. In carrying out
the empirical assessment of the steel industry we have seen institutional
changes taking place as part of the restructuring process. For example, when
the industry could no longer fend for itself, self-regulation of the US industry
was abandoned in favor of more state-business cooperation. The wholesale
privatization of the Brazilian industry was another form of institutional
change. At the macro level the reasons are not difficult to isolate: the


exha ustio n of th e sta te -led mod el of eco no mic development h as br ou ght
pr ivat e cap ital t o th e for efr ont, while cap ital itse lf has tak en th e ini tia tive
to reassert its id eological place in the eco no mic syste m. At th e micro level,
th e shift fr om sta te interve ntio n to pr ivat e initiatives is n ot a gua ra ntee of
dyn amic industrial gro wth. Robust industrial development w ill still be
dictat ed by th e institu tio na l setting and market developments. H owever,
most pr act iti on er s an d scho lars wo uld agree on the grea te r flexibility of
pr ivat e firms in commerci al an d technol ogical decision-mak ing, implyin g
reori enting th e rol e of the sta te away from basic pr oduction .
    Th is shift- fro m th e sta te to th e pr ivat e secto r-also appea rs to be th e
new governance stru cture adopted for capitalist regul at ion where th e sta te
has been dom inant. It is a reflecti on of th e lar ger systemic development. Thus
with th e hypermobil ity of capital resulting from technological chan ge, th e
global trend has been to reduc e th e rol e of the government in econo mic affairs.
Thi s retr eat of th e sta te is justifiabl e in some cases but in many others it could
be pr em ature. If institution al coh erence distin gu ishes th e evo lutio n of th e
steel industri es of Jap an an d Kor ea from th ose of th e US and India, it is clear
th at sta te support is still necessar y for pr ivat e cap ital to realize expa nsio na ry
goa ls. Such support could be in mobili zing resources, acquir ing technology,
and develop ing infr astructure. H owever, the shift is not a foregon e conclusion,
as th e US industr y reminds us. When th e go ing got ro ugh, th e US industr y
beseeched th e gove rn ment for econo mic and policy assista nce. The Trigger
Price M ech ani sm and Voluntar y Restr aint Agreement s spa nning a decad e
an d a half are sufficient testimon y to a flexible bilat er al relat ion ship between
sta tes and priva te cap ital.
    Th ere have been three other forms of ch an ge in cap italist regul at ion th at
are em bedded in th e lar ger institution al shift from th e sta te to priva te capital.
Th e first is th e grea ter involvement of for eign cap ital in dom estic ind ustry, a
process set in mot ion with industri al restructuring. Th e second is th e rise of
entre prene urs in new segments of th e steel industr y. And th e th ird is flexible
industri al relati on s cha ra cterizing some of th e new mills. All three reflect th e
basic glo ba l trends: hyp ermobil it y of capital , inte rnatio na liza tion of
production, an d incr eased capitalist competition .
    Th e US industry was forced to seek foreign cap ital and technology as a
respon se to technological obso lescence. The development of severa l joint
ventures, mainly with th e Jap an ese, creat ed a new institutio na l arra ngeme nt
for capitali st in dustr ia liza tio n. Joint ven tures are by them selves quite
unrem arkabl e but th e case exa mine d in th is study is mor e th an a reflect ion of
th e industry' s respon se to th e industr y cri sis. It h as been a systemic respon se
to regener at e th e industr y. H ere too innovatio ns played a rol e in altering th e
stru cture and institution al arrangements govern ing th e US steel market . No
doubt, certain idiosyncr at ic fact or s also played a part in intro ducing foreign
player s, such as th e big supply ga p in th e US west coast market and th e
esta blishment of Jap an ese auto tr an splants. Neve rtheless, joint ventures in


th e US steel industr y ind icat e th e mobility of capital in an industr y th at has
been far less internatio na lized th an other industries du e to its perc eived
nati on al imp ortanc e. Thi s is ind eed th e first major instanc e when foreign
ow nership of th e ind ustry h as been widely accepte d an d which has been
highl y effective in reorgani zing th e US int egrat ed segment.
    The conc omit ant eme rge nce of new innovatio ns an d entre pre ne urial
breakthroughs in a number of countries, especially in India, raises some
qu esti on s abo ut th e relat ion ship bet ween lat e industria liza tio n an d th e
emergence of th e capitalist class. Wheth er sta te -led capitalist development
has been respon sible for nurturing Indian entreprene urs is deb at abl e. An
overex ten ded Indi an sta te with limited institution al cap ability could only
regul at e rather than pr om ot e rapid cap it al ist in dustria lizatio n . Yet the
tr an sformati on of th e Indian priva te secto r steel industr y from one of rent-
seeking to one th at is mor e technologically dri ven suggests some relati on ship
between th e sta te and entreprene uria l outcomes. Elsewh ere an d in ano ther
context I have shown (D'Costa 1995b ) th at Indian econo mic reforms have
been as mu ch a result of the exha ustion of th e sta te-led mod el of development
as th ey have been an outcome of th e mo del's success in creating a lar ge,
het er ogen eou s, middle class. By ex te ns ion one can arg ue that sta te -led
development also nurtured a new breed of incipient entreprene urs. W ith th e
sprea d of capitalist relation s and the hegem on y of econo mics over other social
spheres, it was relat ively easy for commerc ial entre prene uria lism to fill th e
new spa ces creat ed by a retr eating sta te.
    W ith out a doubt, th e Jap an ese and Korean sta tes have nurtured a highl y
dynamic capitalist class through effective indu strial policies. Alrea dy endowed
with highl y networked social arrangeme nts, th e Japanese sta te wo rke d in
conjunction with hu ge kereitsus to pursue nat ion al econo mic development
and foster capitalist in dustria lizatio n. The Kor ean sta te too propped up
gigantic family-owne d chaebo ls through discr imina to ry credit an d other
industria l policies. Thus th e nexu s between big bu siness an d th e sta te has
been a dominant feature in lat e industri alizat ion .
    From a lib er al , m arket- or iented per spect ive, such a nexus h as been
interpreted as nepoti sm, subject to corruption , an d "crony capitalism ." The
recent financ ial deb acle in East and South-Eas t Asia is seen as th e vindicatio n
of th e failure of econo mic systems th at deviat e fr om market mech ani sms.
While th ere is certainl y plent y of truth in th e allegation th at "per son al "
relati on ship s in econo mic man agement have been abused in th ese countries,
our mem or y sho uld n ot be so sho rt th at we forget th at both th e Jap an ese and
Kor ean econo mies have tak en a H erculean leap in the pos t-wa r peri od .
Intellectu ally, it wo uld be also prudent to sepa ra te th e whea t from th e ch aff:
th ese tw o econo mies are str uctura lly and technologically very different fr om
th ose of South-Eas t Asia. With out belittling th e gravi ty of th e Asia n cr isis,
both Japan and Korea are on a higher industri al and technological terrain .
Person al relat ion ship s in th eir industria l achieve ments have been imp ortant.


Thus the judgment on this issue, that is whether economic development and
efficiency must necessarily follow liberal market dictates, must await further
research. What is incontrovertible is that institutional capability is a necessary
condition to create a capitalist class.
   The standardization of steel technologies and the maturity of private capital
in many developing economies have automatically reduced state support.
However, it would be simply irresponsible to abandon the provisioning of
public goods. Even the World Bank, highly critical of state-led development
in the neo-liberal era, has admitted the importance of the institutional
capability of the state (World Bank 1997). Thus it makes little sense to privatize
POSCO, even as political pressure mounts in Korea to do so, except perhaps
to keep up with the ideological trend and appease private capital. One can
parenthetically add that the chaebols themselves have mismanaged their
financial affairs. Hence handing over cash-rich POSCO to private capital
might not be economically rational but politically justifiable. From the
standpoint of expansionary industrial restructuring, our empirical investigation
suggests not the banishment of the state from economic affairs but a more
limited and focused approach to innovation. States can continue to play that
role, even if a diminished one, at a time when the durability of institutions
are at stake.
   There is also the question of the mode of financing industrial expansion.
It has been shown that the short-term profit horizon of US steel firms had
undermined long-term investments in plant and equipment. Conversely, the
debt-based financing in Japan and Korea was conducive to an investment
momentum that could keep abreast of industry innovations. As long as
market growth prevailed, using cheap loans was an easy way to increase
industry capacity in East Asia. That there could be inefficiency in the use of
subsidized capital and that it could have contributed to excess capacity in
Japan is generally accepted. However, without targeted investments neither
the Japanese nor Korean industries would be where they are today. Even
where debt-based financing of industry has backfired seriously, as in the
case of Hanbo Steel of Korea, the $6 billion corruption-tainted loan was
invested in state-of-the-art technology. The plant is expected to operate
competitively. The point here is neither to settle which form of financing is
better for capitalist industrialization nor to argue against transparency in
financial activities but rather to suggest that an investment momentum is
necessary to keep up with technological change. With weak capital markets,
states wishing to transform their economies industrially find debt-based
financing, even at the risk of inefficiency, the best avenue for such
transformation. As long as capital is directed toward core sectors and their
technological upgrading, the industrial and technological spinoffs will be
perceived to outweigh the costs.
   The last institutional change has been a transformation of industrial
relations. The Japanese corporate sector since the 1950s successfully


established enterprise unions that virtually eliminated labor militancy and
introduced significant flexibility in industrial production. In the US, newer
minimills have followed this model by maintaining union-free, cordial
industrial relations. This is in stark contrast to the highly unionized integrated
segment. The US minimills, for example, have adopted the production-driven,
Japanese bonus system that rewards workers for maintaining high throughput.
Minimills have introduced a lean workforce by relying on automation. Other
firms in other countries have also attempted to create a stoppage-free work
environment. The evolution of the Japanese and Korean steel industries
exemplifies the importance of labor peace for capitalist industrialization. The
pressure to change industrial relations is reflective of the broader developments
in capital mobility and increased demands by employers for worker stability.
The subordination of labor by capital is complete when the interest of both
capital and labor converge. While this in itself is not a bad thing if workers
are also able to secure a greater share of their labor, the nature of politics
becomes fundamentally altered. For the more class-conscious, this would be
tantamount to the end of politics as we know it and a serious blow to worker-
based activism.

          Technology, strategy, and the international division of
Over the last one hundred years the steel industry has witnessed several radical
technological innovations and numerous incremental ones. They have been
progressively designed to reduce costs, increase quality of output, and provide
cheaper raw materials. The shift from Bessemer to open hearth to basic oxygen
furnace in association with increasing scale of production represents this
technological evolution. Large-sized blast furnaces, continuous casting, and
the wider application of computer and process controls fundamentally altered
the technological status of the industry worldwide. The more recent
developments in the minimill segment using a variety of inputs and thin-slab
casting further added to the technological repertoire of the industry. However,
technological change cannot be assumed to be given. The process of diffusion
is necessary for an innovation to become the industry standard. As we have
seen, the adoption of new technologies is dependent on the institutional
response to innovations and their ability to introduce them for production.
Future restructuring of the industry would thus depend not only on new
innovations that might emerge but also on the strategy of firms to adopt
    In the 1980s the global steel industry was not positioned for any major
technological breakthroughs, even though new generation minimills in the
US were becoming commercially competitive. Most technological efforts
had been directed toward cost reductions in integrated production (Kawata
1986:47-9).3Modest expenditures on steel research and attempts to develop


dir ect steel ma king in th e US, eliminating th e need for cok e ovens and blast
furn aces, did not seem pr om ising (perso na l interview, Vice President of
Co mmunications, American Ir on and Steel In stitute, Washingt on , D .C.,
August 198 8 ). A decade lat er th e Amer ican Ir on and Steel In stitute's dir ect
steel ma king pro ject is still gra ppling with funding pr obl em s. After severa l
years, th e Japanese DIOS pr oject is st ill at th e pilot stage. Alte rnative
technologies, such as nuclear-p owered steel ma king, could be introduced
sometime in th e twenty-first century (Ro binso n 1988: 30 ). At th is t ime th e
restructuring of th e industr y is being dri ven by con vention al BF-BOF
technology and by scrap-substitu te-base d EAF pr oduction. On a sma ller
scale, th e diffu sion of th e CO REX process in conjunction with conventi on al
BOF and EAF technology is also mak ing inr oad s into th e steel industry
(Pa ine Webb er 1996 ).4
    If no major innovatio ns are expected in th e near future, thus rul ing out
leap-frogging possibiliti es, wha t kind of industri al reorgani zation can we
expect ? By identifying existing cap acit y, th e current technological sta tus of
th e industr y, and th e genera l econo mic climat e we sho uld obta in a bro ad
picture of an eme rg ing inte rnationa l division o f lab or. First , cap acity
adjustment in th e industri alized countries, such as th e US and Jap an, will
continu e. Second, as we have shown, Korea 's ex pansio n is ex pected to slow
down , while potenti ally both Brazil and Indi a could becom e major steel
markets and thu s experience rapid capac ity growth. M assive infr astructure
needs in th ese two near-c ontinent al econo mies could be th e dri ving forc e
beh ind th e industry's ex pansion. The rem oval of vario us unnecessar y
regul at ory measures in Brazil and India could lead to increased dem and. For
exa mple, th e future ava ilability of steel pr oducts in Ind ia in 2001-2 has been
estima ted to be 39 mt , with dom estic demand touching 31 mt (Table 8.2 ).
Th is is an upward revision of th e Working Group Estimat es made in 19 86

Table 8.2 India' s supply and demand position in 2001-2 ('000 tons)
                      Supply                                                       Total
                      Existingplants           Projects under   Proposed   Total
                                               implementation   projects

Long products         10.92                    0.85                        11.77   16.70
Flat products
   Plates              1.25                                                 1.25    3.00
   HR coils/sheets     5.32                    4.35             11.43      21.10    5.50
   CR coils/sheets     1.92                                      0.80       2.72    3.40
   Other sheets        0.66                    0.70              0.40       1.76    1.90
Grand total           20.20                    5.90             12.63      38.60   31.00

Source: Intern al documents, M .N .D astu r and Co ., Ca lcutta, June 1 99 6
No te: Total di scr epan cies are d ue   to   rou nd ing


th at proj ected Indi a's demand to be 25 mt of steel products in 1999-2000.
Total demand for finished steel in 2004-5 is estimated to be 42 mt , 48 percent
of which will be for flat products.
    To meet this growing demand a numb er o f gree n fiel ds are under
con struction and severa l others are in th e pipeline. Th e difficulty for Indi an
entreprene urs in mobil izing cap ital and th eir inclination to tap th e market
for simple products, such as wire rods, have made sma ll-scale units attra ctive
in Ind ia. H ow ever, India's relianc e on EAFs and mini bla st furnace-b ased
integrat ed production is ex pected to be inadequate to meet growing demand.
Already some new stru ctura l barriers have emerged, such as th e availability
of scra p. Minimill cap acit y ex pa nsion in th e US has reduced th e globa l
availabil ity of prime scra p. Other countries, such as Korea, are also increasing
th e con sumption of scra p (Figure 8.1 ). Notwithstanding th e introduction of
new inn ovati on s, Ind ian firm s overa ll are still cautiou s. For exa mple, Jindal
Vijaynagar introduced India's first CO REX pro cess partl y because of problems
of scra p supply and insufficient gas for DR!. Also tariffs on pow er are very
high . Similarly, th e Essar Gro up, with th e largest gas-base d DRI unit , is going
for a tr aditional blast furnace to overcome cost inefficiencies associated with
EAFs (Econom ic Times, M arch 2, 1998:11 ). Such investment strategies reflect,
on th e one hand, an expansiona ry form of restructuring and new constraints
to th at ex pa nsion, on th e other, EAFs, despite th eir favorabl e size and
flexibility, cannot be India 's answer to incr easing steel output.


      18,000                    Domestic consumption
                                Domestic production


_ 12,000
;     10,000
~      8,000


                                  .,- -----                                  , -------
                               ----,'--------~--- -, /
       2,000     - _,'

               1980     1982    1984       1986         1988   1990   1992     1994   1996

Figure 8.1 Demand and supply of steel scra p in Kor ea
Source : Person al communicati on ,   pa sco   (1997)


    The expansion of the Indian steel industry will depend on the extent to
which the private sector can fulfill its investment plans. A number of existing
firms are strategically integrating backward, that is, adding steelmaking
facilities to their finishing mills. Finishing steel is generally more profitable
but, as markets expand, vertical integration allows firms to capture more
value from the entire production chain. The recent bullish trend in investment
in the Indian steel industry could easily be reversed as coalition governments
fail to agree on a national industrial strategy and overcome the severe
infrastructural bottlenecks that the economy as a whole confronts. Already
TISCO has expressed second thoughts about its mega steel project for want
of adequate infrastructural support.
    The implication for industrial restructuring is that if projected supply does
materialize India will have to find export markets. India still has the advantage
of low wages, roughly $1.5 per person-hour, less than one-tenth the US and
Japanese rates. India's export market traditionally has been small and only
recently, with the erosion of the Indian rupee, has the industry become
somewhat export competitive. With a sizable share of exports destined for
the South-East Asian markets, the currency turmoil in the Asian region is
likely to dampen India's export market in the near future. More importantly,
increased international competition is expected in the region as Japan and
Korea, with their massive steelmaking capacity, are unlikely to remain passive
in the region. Already a number of companies from Japan and Korea have
begun several projects in the South-East Asian region. For example, both
Korea and Japan have large steel projects in the offing in Vietnam.
    The restructuring of the Japanese steel industry is unlikely to witness
significant capacity reduction. The overall Japanese annual output in the
next few years is expected to hover around the 95-100 mt range. As long as
coke ovens continue to function at acceptable levels, large-scale integrated
production will remain dominant in Japan. Coke ovens in Japan are past
their prime and constructing new ones is prohibitively expensive,
environmentally undesirable, and makes little commercial sense in a world
with excess steelmaking capacity. The industry is also unlikely to witness
radical technological changes in the medium term. The industry-sponsored
direct steelmaking project is still at the pilot stage.
   With constant upgrading and maintenance of plant and equipment, the
Japanese integrated segment is technologically sound and hence investment
in smaller scrap-based thin-slab casting is not attractive. The problem is not
of scrap supply-Japan has become a net exporter of scrap-but rather the
high cost of electricity that provides few cost advantages over technologically
well-established integrated mills. Also, existing EAFs are highly competitive
and have captive markets in the Japanese construction industry. Minimills
that are affiliated with integrated firms have some cost advantages as they
have rationalized their production in conjunction with their group partners.
Thus constructing new blast furnaces in Japan is virtually ruled out and for


at least another decade or two the Japanese industry will be led by integrated
producers and not by minimills. Bythis time new technological breakthroughs,
such as large-scale direct steelmaking, may be commercially profitable. The
Japanese industry will therefore continue to rely mostly on their blast furnaces
for making high-quality steel and they will try to extend the life-time of BFs
for as long as they can. Older blast furnaces will be retired should the decline
in productivity be significant. But there is reason to believe that blast furnaces
in Japan will be deployed to supply pig iron, which is superior to scrap, for
new minimills in the Asian region.
    The restructuring of the Korean steel industry is following a different path.
Given a declining growth rate, it is unlikely to attempt another integrated
greenfield project. Instead, pasco has been adding incremental capacity at
its existing sites. For example, at its Kwangyang plant, pasco added a fifth
blast furnace to produce another 3 mt of crude steel. About 40 percent of pig
iron from this blast furnace will be used by two minimills with the rest of it
going to existing BOFs, whose working capacity will be increased to handle
larger charges. Kwangyang already has a 1.8 mt minimill. Another minimill
with a 2 mt capacity is under construction. Using pig iron is expected to
relieve some of the pressures arising from limited scrap supplies, especially
with Hanbo Steel's large new minimill coming on stream.
    The US industry, particularly the integrated segment, after a decade and a
half of reorganizing has once again become internationally competitive.
Thanks to the Japanese, capital and technology infusions have rejuvenated
several American plants, especially finishing mills that produce hot-and cold-
rolled sheets and galvanized products. The US is not expected to be a major
exporter because of its own domestic requirements and its relative
uncompetitiveness due to its currency appreciation. With another 10-20 mt
of new generation minimill capacity in the US, the American industry as a
whole is unlikely to yield any significant chunk of its domestic market to
    The US industry, however, still has some problems and will have to continue
adjusting obsolete capacity and to consolidate its operations. About 10 mt of
integrated capacity, typically the smaller mills, could be shut down due to
ageing facilities, unviable location, and inappropriate product markets (see
Hall 1997:280-1). With the elimination of older blastfurnaces, the US industry
has excess capacity in hot strip mills, leading to the industry's dependence on
imported slabs. Heavily indebted countries like Brazil and increasingly some
of the Commonwealth of Independent States, which are very short on hard
currencies, have found market niches in the US. Similar to Japan, the US
industry is not expected to add any blast furnace-based steelmaking capacity.
Instead, the industry will continue to profit from low-cost suppliers of semi-
finished products and enhance its competitiveness on value-added products.
The durability of this advantage will depend on the industry's continuing
ability to meet the foreign challenge with new innovations and institutional


arrangements. It will also have to ensure unrestricted supplies of imported
semi-finished products, a prospect made relatively easy with excess capacity

An institutional interpretation of steel industry restructuring provides a highly
nuanced insight into the process of capitalist industrialization. The central
dynamic is technological change with its attendant institutional responses,
by firms and industrializing states. The resulting uneven diffusion of
technology, accompanied by changes in scale economies, has contributed to
the overall reorganization of the industry. As the industry becomes more
internationalized, steel production like other manufacturing becomes subject
to greater competitive pressure. Under pressure, firms attempt to specialize
in some segment of the production chain, such as the production of pig iron,
semi-finished steel, hot-rolled coil, and so on. The implication of this on
restructuring is reduced entry barriers, reflecting the continuous competition
inherent in the capitalist industrial system.
   This interpretation also underscores the ideological role of the state in
modernizing the economy but whose success rests heavily on institutional
capability. As competition increases with internationalization we can expect
an imposition of certain kinds of institutional changes. We have already
witnessed the real and ideological pressure on the state to abandon its
entrepreneurial and regulatory roles. We have also witnessed the rise of private
capital and, insofar as the industry is concerned, we can expect private industry
to meet the rising consumption in Asia.
   Steel demand in Asia is projected to increase by 25 percent (excluding
Japan and China) or more than double the global growth during 1996-2001
(Fish 1997). Consistent with these global developments we can also predict
the growing importance of flexible industrial relations to meet increasing
demand. But in keeping with the structural requirement of capitalist
competition we can also expect the specter of excess capacity. Driven by the
competitive imperatives, the surge in new generation minimill growth in the
US and the focus on flat products in virtually all major steel producing
countries is likely to result in lower capacity utilization and cutthroat
competition. We can only speculate who will be hit, with what severity, and
how they will respond at this time. What we do know is that the capitalist
crisis is impermanent. If the past is any predictor, we can expect the industry
to continue to renew itself.
   However, questions pertaining to future restructuring still remain. Will
the late industrializing countries, by then with significant capacity, readily
adjust to changing circumstances? Does this mean that the logic of the market
will have taken deeper roots than before and technology strategy be relegated
to the background? And in the absence of state-led capitalist regulation, will


self-regulation in an internationalizing environment be viable for institutionally
weak governance structures?
    My interpretation of the restructuring process provides some answers to
these questions by demonstrating that politics and institutions matter in
industrial change. The institutional framework, which combines both macro
and micro aspects of capitalist industrialization, can contribute to our deeper
awareness of capitalism as a "system" of production on the one hand, and its
increasing internationalization on the other. The analytical framework is also
useful for its heuristic value: it enables us to grapple better with questions
surrounding industrial and technological evolution in a national context. By
appreciating the relationship between institutions and economic change we
have been able to explain the persistent heterogeneity of the industrialization
process in an otherwise unifying international economic and industrial system.
By recognizing institutional change accompanying industrial change we are
also prepared to understand the on-going restructuring process in the twenty-
first century.


1   This may violate the norm s of "scient ific" investigation since research questions
    ought to be posed a prior i witho ut ha ving the da ta determine the ana lytical
    framework. H owever, moving linearl y from theory to emp irica l validation is
    int ellectu ally unacceptable when pro cesses are essentially social and institution al,
    cumu lative and on-going. With feedb ack loops in place it is nearl y impossible to
    ign ore th e pre -existing dat a.
2   In th e manufactu rin g sector th e average number of hou rs worked per week in
    Korea and Taiwa n in 1980 was 60 and 51 respec tively (Scitovs ky 1985 ), while
    in Indi a it is between 35 and 40 hours per week (Cha kravarty 1987:9). This
    difference in work week generates m ore absolute surp lus value in Taiwa n tha n
    in Indi a and it is a goo d pre dictor of both East Asian co unt ries' eco no mic
    developm ent. If Taiwa n is assumed to adopt m ore mod ern technology th an Indi a
    th en Taiwa n wo uld be generating even greater (relative) sur plus value and
    econo mica lly growing much faster tha n Ind ia. See also Brenner (1977).
3   A third contra diction ar ises from the resista nce offered by precapita list mod es of
    produ ction to th e penetratio n of th e cap ita list mod e in under develo ped regions.
    At th e turn of th e twent y-first century few areas remain im perviou s to cap ita list
    dominati on .
4   Mos t introdu ctory text s on micro econ omics treat techn ology as some combination
    of inputs with ou tput levels determined by in put prices . The same level of output
    is said to be obta ined by vary ing th e input com binations, ign orin g not only the
    costs assoc iate d wit h substit uting one factor for another bu t also not recog nizing
    th at factor substituta bility enta ils technological cha nge and th erefore is not
5   The microecon omi c res ult of fallin g unit costs with increasing outp ut im plies
    aggress ive price competit ion when capacity utilizati on is low. Low utilization
    mean s higher unit costs hence greater incentives to keep production up . This is
    qui te different from th e macr oecon omi c relationship between infl ation and
    capac ity utilizati on (see Corrado and Ma ttey 1997). Besides high utilization rates,
    lower costs could also res ult fro m other extra neo us factors such as exc ha nge
    rate fluctu ati on s, cha nges in int erest rates, and energ y costs.
6   The direction of ca usatio n goes both ways: an accu m ulatio n cr isis co uld
    disco urage techno logy adoption or failure to ado pt co uld res ult in th e crisis. As
    with most social processes, the direction of causality is less imp ortan t tha n the
    cumu lat ive aspects of cha nge. The concep t of path-depe ndence is pertinent , since


     past decisions and institutional legacies in a cumulative way are likely to influence
     future decisions, that is, crisis could lead to technological obsolescence which in
     turn could lead to intensified crisis and thus the failure of the firm . Therefore a
     delay in introducing an innovation could easily lead to obsolescence (see Liicke
     1993:1226). Conversely, the operation of a virtuous circle could generate greater
     opportunities for new investments and therefore sustained accumulation.
7    Structurally, a powerful rural oligarchy and speculative classes could hinder the
     process of technology diffusion (Bagchi 1987:5-9) .
8    Here competition is used differently from the neoclassical idea of numerous
     firms in a perfectly competitive situation. Competition encompasses production,
     exchange in the market (realization), and distribution of profits. It includes
     competition between capital and labor and among various capitals. It is the
     mobility of resources underlying surplus generation that denotes the full
     meaning of competition. Competition is not the starting point but a consequence
     of capitalist property relations and self-expansion of capital. It exists
     independently of the number of firms in the market (Jenkins 1987:45; see also
     Weeks 1981 :151-69).
9    See also North (1990). However, North's focus on "liberal" institutions does
     not capture the formation of state-engineered capitalism under late
10   Curiously both adoption and non-adoption of new technology can have a
     depressing effect on profits . Forgoing adoption implies increased competition
     from those firms that have the new technology and adopting it means increased
     fixed capital costs and forgoing more attractive alternative investment outlets.
11   Technological change can be capital saving as well since firms are interested in
     reducing total costs (Salter 1960, see also Rosenberg 1984:22-41). Most Marxian
     anal ysis discusses the organic composition of capital (a value term), which is not
     quite the same thing as the capital-labor ratio. The use of organic composition
     of capital here would be misleading because it would imply the tendency for the
     profit rate to fall with the rise in the organic composition of capital. This
     relationship at the industry level is dubious because an increase in capital intensity
     is likely to increase productivity and hence surplus value. In fact this relationship
     can be turned on its head by showing that the declining profit rate is due to the
     relative decline in the organic composition of capital.
12   Under new technology the share of wages per unit of output is expected to fall
     with higher productivity, given the same wage rate . Even with an increase in
     wage rates (associated with increasing productivity) new technology could still
     reduce the share of wages per unit of output. Institutional arrangements and the
     balance of class forces would ultimately determine the final wage costs.
13   The decline in profit rates in industry has transformed industrial capital to finance
     capital (Miller and Tomaskovic-Devey 1983:22-4; Petras 1984:185-8). The spate
     of mergers in the US in the 1980s indicates high profitability associated with
     mergers rather than with productive investments. The high rate of return is
     obtained immediately after the merger transaction. Mergers are less risky since
     no new production is involved and firms continue to serve well-established
     markets . Most mergers were conducted with borrowed funds, and as the interest
     due on such funds was often tax exempt it became even more profitable.
14   The long cycles of economic activity called "long waves" have re-emerged as a
     subject of inquiry for understanding capitalist dynamics. There are several theories
     but all deal with the cyclical nature of capitalism over the long haul. Schumpeter
     (1975) gave more importance to the innovative activity of large corporations,
     while Mensch (1979) augmented this view with the bunching (swarming) of

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     techn ological cha nges, th at is, each basic inn ovati on lead s to man y other relate d
     ones. Forrester (198 1) and his colleagues at M IT's System Dynam ics Gro up reject
     technological cha nges as necessary or sufficient to long swings of economic activity.
     Instead, they argue the dynami cs of self-ordering of cap ita l goo ds (that is, one
     pur chase leading to another) , and give greater importa nce to wage and int erest
     rates (Sterma n 1985, and person al communication with Sterma n, Decemb er
     1985 ). See also Freema n et at. (1982), Van Duijn (1983) and Freema n (1983) for
     other views on lon g waves .
15   Rhee (199 4) shows how particular in stitution al arrangements in South Korea,
     mainl y state-business relationships, contributed to over invest ment in th e heavy
     and chemical ind ustries. The crisis was one of overproduction and not cut backs
     in capacity. H owever, th e Kaleckian effect on accumulation is similar: eco no mic
     in stabil ity as a result of over investment in fixed cap ita l und ermines bu siness
     confidence and pro fita bility.
16   Upswin gs are said to ar ise from th e bunchin g of inn ovati on s. Wh y techn ologies
     clusterin g around a core techno logy should give rise to an econo mic upswing is
     not answe red by lon g-wave protagonists. Whi ch technologies become the carr ier
     techno logy for the upswin g is also uncl ear.
17   See also Markusen (1986). H er pro fit cycle m odel is more institution ally driven
     compared to th e esta blished pro du ct cycle mod el, which is generally mark et-
     driven. She introdu ces indu stry structure, state policies, and cap ital-labor conflicts
     in exp laining th e different pro fit cycle phases .
18   O ugaard (1983) classifies three form s of peripheral ca pita list industrial structure
     on the basis of their ability to pro duce different types of goo ds and th e link ages
     thus form ed for production and realization . Th ey are (a) consumer goods, (b)
     th eir mean s of production, and (c) th e mean s of pro duction for produ cer goo ds.
     Prod ucti on of pro ducer goods is of th e highest rep roductive imp ort an ce and in
     latecom er countries it is the state that atte mp ts to und ertak e this. See also Bagchi
     (198 4b).
19   Even if the technology is imported or the industry is under foreign cap ita l bu t
     relies substantially on local inputs and ma rk ets, there can be dynamic efficiencies,
     suc h as the deve lo pme n t of re la te d indu st ri es (Bresser Pereir a 19 84 :24 ;
     Gunnarsson 1985:198).
20   According to Kla pp (1987), examining th e oil industry, the intervent ion by th e
     state in adva nced cap ita list countries is limit ed by political op position at home,
     whereas in developing co untries nati on alistic and publi c welfare fun ction s serve
     to legitimi ze expa nsion of state corporations.
21   Klapp (1987) makes a pers uasive arg ument th at sta te enter pr ise auto no my is th e
     embod iment of sta te auto no my. Follow ing the Weberian ideal type, she arg ues
     th at as the sta te is composed of the bureau cracy and mini stries with certain
     "na tional" goa ls in th e "public" inte rest th ere is likely to be a stro ng consensus
     amo ng the vario us institu tion s of the state , and therefore greate r effectiveness in
     carrying out nati on al goa ls.
22   In a parallel fashion, Rosenb erg and Bird zell (1986) exp lain inn ovati ve behavior
     in th e West largely as a result of auto no my of th e econo mic secto r from po litical
     and tra dit iona l authorities. This in stitution al cha nge has been hi stori call y
     imp ortant as the sprea d of privat e ow nership impli ed a decent ralized, plura l
     system . At th e same time, given the scale of reso urces needed for inn ovati ve
     activity, some form of a centralized , bu reaucrati c app roach with a single-minde d
     purpose increasingly became more suited to generating ra dical techni cal cha nges.
     The heavily centra lized M eiji sta te in Ja pan was one such case that generated
     to p-down techno logica l cha nge .

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23 Rani s an d Mahmo od (1992) argue that lSI is eas ier to implem en t since
   liberalizati on is not part of th e stra tegy and hence vested int erests continue to
   earn rents. Yet thi s is a sta tic view of social cha nge . The emerge nce of a mid dle
   class under lSI can be the basis for econo mic liberalization . On th e other han d,
   Sachs' (1985 :550) argu ment that the political stre ngth of the indu strial bourgeoisie
   in Latin Amer ica was respon sible for lSI strategies and converse ly the rural sector
   in East Asia was respon sible for outward-loo king excha nge ra te and tra de policies
   has been seriously cha llenged (see Bardha n 1991 :253).
24 This has been a classic preoccupa tion with m ost depend ency and wo rld-syste m
   scho lars (Fran k 196 7, 19 81 ; Amin 197 6 ; Wall er stein 19 84 a, 19 84b ).
   Trans natio na l corp oratio ns an d glo ba l pr oducti on netw ork s are seen as
   undermining th e development prospects for non -metrop olit an econo mies (Ragi n
   and Delacroix 1979; Rubinson and H oltzman 1981; Bornsc hier and Chase-Du nn
   1985; Ne meth and Smith 1985 ). The mu ch more sop histicate d ana lyses of th e
   "depe ndent" development school (at th e nati on al level see Evans 1979 for Brazil
   and Lim 1985 for South Korea; at the sectoral level see Gere ffi 1983 for th e
   pharm aceutical industry) also suffer fro m overstating the dominan ce of foreign
   cap ita l, despite recog nizing the growth in th e com plexity and differentiati on in
   th e pro ductive structure of severa l late industrializing co untries. The externa l
   dominati on is also noted by some non-d epend ency Marxists (Zeitlin 1972; Petr as
   1978 , 1984; Week s and Dore 1979; Lowy 1981; Chilcote (ed.) 1982).
25 In distinguishing technical cha nge as supply-driven or demand -induced, Rosenberg
   (198 4), followin g the Schumpeterian interpretation, asserts the importan ce of
   supp lier-drive n techni cal cha nge . Diffu sion on the other hand is more demand -
   based. For late industrializing cou ntries both supp ly and demand factors are
   imp ortant for th e diffu sion process .
26 Even th ough th e newly industrializing co untries have most of th e preco nd itions
   to accept and use mod ern techno logy their design capacity is still quite limited
   (Chu dnovs ky et at. 1983). Techno logy for late industrializing co untries has been
   suggested as being "if not the car rier of social progress, at least in a less mechanistic
   concep tion its prerequisite" (Emma nuel 1982 :10 5, emp hasis in origina l). The
   refere nce is to th e benefits of im porting capita l-intensive techno logies (greater
   surp lus generation) witho ut the cos ts of research and development.
27 Tho ugh techn ological cha nge incorp orates necessary orga nizationa l cha nges, in
   this stu dy the intern al fun ctioning of steel enterp rises is not exa mined. Brief
   refere nces will be made to relate any ra dica l shifts in orga nizational cha nges
   with techno logical cha nge. The large-scale nature of int egrat ed steel pro duction
   m ak es it difficult to in t r oduce new fo rm s of sho p-floo r a n d co rpora te
   restructu ring, increasingly found under flexibl e industrial practices, such as in
28 This is also kn own as "techno logy followin g" (Fransma n 1985:614), referr ing
   to th ose techno logies that are either stag na nt or earlier vintages that are not
   being used in th e inn ovating countr ies. Alth ou gh th ere are instan ces of steel
   mills being purchased, dismantled, and shippe d lock, stock, and barrel by countries
   lik e China an d Indi a, characterizing stee l technol ogy as stagna nt is n ot
   appropriate. Th ese countries also possess state-of-the-ar t facilities.
29 Pozn an ski (1983) distin guishes simp le (BOF) fro m comp lex (CC) techno logies
   to demon strate th e varying rates of diff usion . H e arg ues th at latecomers have
   less to benefit from simple techn ologies since accumulated experience for simp le
   techn ologies does not amo unt to mu ch, whereas rap id adoption of comp lex or
   newer inn ovati on s still undergoing development is expecte d to yield grea ter


                      AMERICAN STEEL INDUSTRY
 1 The crucible process involved heating wrought iron bars with powdered charcoal
   in closed boxes. After the iron had absorbed carbon the bars were melted in
   earthenware crucibles and cast into molds . Each batch was about 100 lb, thus
   limiting mass production (Gold et at. 1984:530).
 2 Between the two economic downturns in the last quarter of the nineteenth century,
   Andrew Carnegie was able to reduce the cost of making steel rails from $100 per
   ton to $12 (Rosenberg and Birdzell 1986:213) . Carnegie used the Bessemer
   process, which was much larger and technologically superior to the crucible
 3 The Japanese had already developed a technology similar to the Bessemer process
   during the much earlier Tokugawa period (Morris-Suzuki 1994:45).
 4 A bloom is a square or rectangular piece, whereas a slab has a similar cross-
   section except that it is much wider and thinner than a bloom. Billets have a very
   small cross-section and, like blooms, are used mainl y for producing long products,
   such as rods. Billets can be obtained by rolling blooms. Slabs are mainly used for
   producing flat products such as sheets, plates, coils, and so on.
 5 In volume terms the stainless steel segment is the smallest. The application of
   specialty steel is limited to small quantities for very specific purposes. For example,
   US consumption of stainless and alloy steel in 1986 was 1.16 mt (USInternational
   Trade Commission 1987b: A-16), representing onl y 1.4 percent of total US steel
   consumption. Very few firms operating integrated plants and minimills produce
   stainless steel/high allo y products . Out of the nineteen plants in the US producing
   high alloy products only two of them were part of integrated firms (USDepartment
   of Energy and Electric Power Research Institute 1987:3-7) .
 6 The blowing of ox ygen into the Bessemer vessel was already in use by the late
   1930s. However, it was the lowering of oxygen prices that contributed to the
   diffusion of BOFs. Several competing "oxidizing" processes emerged but onl y
   the Linz-Donawitz (LD) process was found to be technically superior.
 7 UK's share of 43 percent of world steel output in 1870 dropped to 10 percent by
   1913, whereas US share increased from 8 to 42 percent in the same period (Paskoff
   1990:78) .
 8 Not surprisingly, investigators at Fortune magazine in the 1930s referred to US
   Steel as a "financial" rather than an "industrial" enterprise. It appears that the
   desirable rate of return was 20-24 percent annual profit (see Paskoff 1990:100).
 9 Given the oligopolistic structure of the industry high profits were ensured by the
   Pittsburgh Plus System, a freight equalization scheme that imposed the same
   transportation cost irrespective of the origin of steel supplies . Competition was
   therefore narrowed to non-price factors. This practice, prevalent since the late
   nineteenth century, was "ordered" to be stopped in 1924 . It was finall y
   discontinued in 1938.
10 It was first adopted in the US in 1954 by the small company McLouth, onl y
   four years after the innovating firm Voest-Alpine of Austria . As late as 1963
   several large US firms with over 50 percent of US capacity had not installed a
   single BOP.
11 Adams and Dirlan (1966) argue that the cost advantage of the BOF was such
   that any reasonable interest rate would have supported scrapping OHF mills
   and replacing them with the BOP. On the other hand, Gold et at. (1980:552)
   point out that the advantages of the BOF were greater in Europe than in the US
   as American firms had OHF technology that was superior to that of the Europeans.

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     In th e 1970s, th e BOF had an 85 percent energy saving over th e OHF (Borrus
12   Californ ia did have some steelma king cap acity. In 192 9 US Steel acq uire d a plant
     in Pit tsbu rg, Ca liforn ia , which it never integrated . It di smantled th e sma ll
     steelma king capacity and retained only th e ro lling mills. It used the Pitt sbur g
     plan t to finish slabs shippe d from th e new war-vintage plant it purch ased in
     Uta h. Bethlehem Steel purchase d land for a greenfield in th e San Fra ncisco area
     to meet th e booming Ca liforn ia deman d while at th e same tim e it pha sed out
     steelmaking plants in Los Angeles and San Fra ncisco . Nationa l Steel also had a
     plant site in Ca liforn ia but never built a plant there .
13   Kai ser was a rel a ti vel y new en tra nt to steelma k ing. It purch ased t he
     govern mentco nstructed Fonta na , Ca liforn ia, plant . It obta ined a loan fro m th e
     Reconst ruction Financing Commission and by 1960 had raised the plant's capac ity
     from 0.75 mt to 3 mt . H owever, becau se it failed to mod erni ze it adeq uate ly th e
     plant had to be shu t down .
14   These were designed to produ ce plates and structurals for shipbuilding and were
     located inland so as to avo id aer ial bombing by th e Ja pan ese.
15   The mismatch between production and consump tion in Pittsbu rgh resulted in a
     surplus exceeding 16.6 mt in 1951 , whereas Michigan had a deficit of 5.3 mt
     (Warre n 1988:305 ). In M ichigan the For d automo tive company had its own steel
     plant while Genera l M otors had shares in several steel compa nies in the state.
16   The Geneva plan t in Utah, which cost the US government over $19 1 million to
     build, was sold to US Steel Corpor ation for und er $5 0 million (H ogan 1971 :1460-
     2). Ano ther plan t built by th e US govern ment, the South Chicago Work s, was
     sold to Republic Steel.
17   In 1920 US Steel contro lled nearly 70 percent of total output (US Gove rn ment
     Printing O ffice 194 8 :1 5 ). In t he post -wa r peri o d there w as indu strial
     decon cent ration amo ng th e to p four firm s.
18   The US Census of Ma nufactu res shows relat ive sta bility in concent ra tion ra tios
     since World War II. In specific products such as sheets , strips, pipes and tub es,
     co nce ntratio n ratios ac t ua lly in crea sed du ring t he 19 5 8-82 pe rio d (US
     Department of Co mmerce 1986). In 1986 nearl y 56 percent of strip and sheet
     shipments was controlled by fou r firm s and over 86 percent by th e top eight
     firm s (US Intern ati on al Tra de Co mmission 1988:11-12 ).
19   Cap ital shortage was perceived as a major problem for moderniz ation, a view
     stro ngly endorse d by the Vice President for Comm unications & Administra tion
     Services, American Iron and Steel Institut e (the US industry representative) (personal
     interview, August 1988, Washington, D.C. ) Alth ough the indu stry's rate of return
     has been consistently lower th an th e US man ufacturing average (except for 1974
     at 16.9 percent) , it cannot be ta ken as evidence of a capital shortage. The indu stry
     is considered to be a low-risk one over the cycle and therefore low returns are not
     unwarranted (National Academy of Engineering 1985:112-14 ).
20   The increasing share of dividend s, 44 perce nt in th e 1960 s to 72 percent in
     1990, signa ls th e difficulti es in committing internal fund s for US inn ovati on s
     (Lazo nick 1994 ).
21   It may be pointed out th at depressed firms often pa yo ut high dividend s to hold
     on to their shareholders while they exp lore new investment outlets (Shapiro and
     Volk 1979:14 ).
22   Steel-intensity as a fun ction is derived from produ ct compo sition of income and
     materi al composition of pro ducts (Tilto n 1990 :25-6).
23   The cost of a cont inuo us caster for a Pitt sburgh-ba sed plant with a capacity of
     1.2 mt/year was estimated to be $23 0 million (De par tment of Planning, Co unt y


     of Allegheny 1988). US Steel Corporation spent about $260 million for a new
     caster at its Gary Works.
24   Reorganizing included leasing arrangements, such as Bethlehem's two continuous
     casters for its Burns Harbor and Sparrows Point plants from the owner and
     trustee-the Connecticut Bank and Trust Co . Voest-Alpine of Austria was the
     supplier of the casters. Of the total of $540 million about 65 percent was to be
     financed by US banks and the rest by Austrian banks, underwritten by the Austrian
     government. Total interest charges will amount to $40 million. The lease period
     is 15 years after which Bethlehem has the option of purchasing the casters at
     about 20 percent of the original value .
25   This is in stark contrast to the japanese state, which attempts to curtail excessive
     competition by promoting mergers. In 1957 the Ministry of International Trade
     and Industry (MITI) formulated the electronics industry promotion program
     that included the formation of a cartel (Nakamura 1985:75). See Chapter 4 for
     more on japan's deliberate merger policies for steel industry development.
26   The condition on this last merger was to sell off Republic's plant at Gadsden,
     Alabama, and its stainless steel plant in Massilon, Ohio . Other conditions for
     the merger included supply of stainless steel bands to the purchaser for ten years.
27   An attempted merger between US Steel and National Steel ultimately fell through.
     In 1981 National had reduced the capacity of its Great Lakes plant by more than
     half. In 1984 it sold its Weirton plant to its employees, leaving National short on
     steel for rolling. In that year US Steel offered $575 million for National and
     agreed to absorb about $400 million of its long-term debts . The cost of acquiring
     National would have been under $200/ton of capacity but the conditions laid
     down for the merger by the justice Department would have required disposing
     of 6 mt of capacity in order to gain 5.5 mt.
28   This plant along with Pittsburg, California works was part of the war effort.
     The Utah plant was sited inland principally to reduce the chances of aerial
     bombing. Geneva produced hot-rolled sheets that were finished in Pittsburg.
     High freight costs and technological obsolescence of both plants were major
     problems, although US Steel suggested that work stoppage was the main reason
     for the plant's disposal. With state help the mill was later purchased by the local
     community in Utah and reopened in September 1987 (US International Trade
     Commission 1988:11-101).
29   The TPM was based on the japanese cost of production plus some mark-up for
     profits and shipping costs. Since no japanese producer would ever divulge its
     cost of production, most of the anti-dumping suits filed by US firms relied on
     arbitrary and often complex methods of computing costs. The European
     exporters, being less cost-efficient than the japanese but more efficient than their
     US counterparts, could conveniently undersell US producers. The signing of the
     US-European Community Steel Pact in 1982 (essentially a VRA) was an attempt
     to resolve this problem .
30   The ineffectiveness and the ad hoc nature of the VRAs is evident in the efforts of
     US steel companies to circumvent them . For example, Tuscaloosa Steel in Alabama
     has a supply contract for slabs with British Steel. However, this contract lies
     outside the purview of the VRAs since including it would exceed the stipulated
     quotas. In a second example, a US Steel-POSCO collaboration entailed imports
     of Korean semi-finished steel (hot-rolled coil) which US Steel wanted to import
     outside of the VRAs.
31   In 1986, for the first time, rank and file members voted on their contracts.
     Previously this was not the case as only union leaders voted on the contracts.

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     L-S Electroga lvanizing Co., own ed by LTV and Sumitom o of Jap an, had a
     separate lab or agreement resulting in only th ree job classificati on s.
32   Fro m 1980 until 1989 real wages declined by over 10 percent (calculated from
     US Intern ational Tra de Co mmission 1990 :5). Th e rea l compe nsation cost for
     produ ction workers as a res ult fell to $23 .49/ho ur in 1989 from $26 .27/ho ur in
     1980 . Thi s decline narro wed the ga p between steel wage ra tes and th e average
     manufactu rin g wage ra te.

1    In both Ja pan and Korea th e annual steel pro duction is roughly 1 ton per ca pita .
2    Ho gan (198 4: 124) interprets low-cost loan s to Korea as a res ult of Kor ea's sta tus
     as a developing co untry. It is evident tha t th e Korean sta te had a negotiating
     capa bility unm atched by most countr ies (see also Cha pter 5 ).
3    Since th e mid-1 970 s not a single int egrated plant has been constr ucte d in th e
     adva nced capitalist countries. As a result, equipment suppliers found th eir market
     dwindling (perso nal interview with N ippon Steel, Tokyo, Octob er 1987).
4    The plant is designed using an "in-line" layout, minimizing tra ns porta tion of
     materi als and pr oduct s within th e plant. The entire steelm aking process and hot
     strip mill are hou sed und er a single roo f extending for only 1.5 km, a distance
     considere d to be th e world' s minimum for a plant of thi s scale. By th e mid-1 980 s
     certain o pe ra tio na l parame te rs in Kwa ng ya ng h ad alread y ex cee de d the
     perf orman ce of many mills in leading industri alized cou ntries. In severa l areas ,
     suc h as bl ast furn ace fu el ratio, bl ast furn ace reco ver y rat e, an d ene rgy
     consumpt ion, Kwan gyan g has performed bett er th an plants in Jap an, th e US,
     and West Ger ma ny (Paine Webb er 1985 :1-10 ).
5    H owever, in th e recession years of 1965-6 th e ref usal of Sumito mo M etals, one
     of th e top five produ cers of Japan, to to w MITI's line for forming a produ ction
     cartel wa s met with swift repri sal. Ultim ately MITI held sway (Upha m 198 6:281-
     5). On the whole MITI practiced, "paterna listic administrative guidance- [striking]
     a ha ppy balan ce between compe tition at home and govern ment sup port for sales
     abro ad" (Tsur u 1994 :82 ). It required consulta tion, persuasion, advice, and a
     reciprocal accepta nce of public-private coo pera tion.
6    In th e domestic mark ets prices were negotiated between trading com panies and
     firms. Often state representatives presided over such negoti ations. The interlocking
     network (ke reitsus) am ong Jap anese production firm s, cons uming industri es,
     an d tr ading ho uses under the umbrella of on e or tw o banks, m aintained
     competition witho ut allo win g dam aging price wa rs. See also Tsur u (199 4 :99)
     who describes Japan's ma ssive expansion as " quite or derly."
7    Since the merger of Yawat a and Fuji, th e Japanese steel indu stry concentra tion has
     increased. H owever, with an indu stry leader now, N ippon Steel Corporation, it
     also became easier to coo rdina te indu stry investment s and prices. In 1972 th e to p
     five steelmakers prod uced nearl y 78 percent of total cru de steel. N ippon Steel had
     doubl e th e capit al and emp loyees of its nearest rival Ni ppo n Kok an (Nipp on Steel
     Corpora tion 1973:34 ). In 1987 th e top six pro duced 71 percent of output with
     Nippon Steel controlling 41 percent of the big five's total. In high-value products,
     such as cold rolled sheet and str ips, the top six prod uced over 90 percent .
8    This of course was strongly denied by the indu stry as a whole (personal interviews,
     N ippon Steel and N ippon Kok an, Tokyo, Octob er, 1987).
9    The first act is effec tively a bailing ou t system fo r la rge ex por t-oriente d
     cor pora tions locat ed in depr essed areas by providing low int erest lo an s. The

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     second act aims to assist firm s in locales th at possess mining, iron and steel, and
     shipbuilding industries, providing mon ey from th e str uctural adjustment fund
     to alleviate the adverse impact on local econo mies du e to plant shutdowns. In
     addition, tax incentives are pr ovided to th ose investing overseas if th ey are judged
     to be ma king effor ts to address the local econo mic pro blems . For the social
     imp act of plant shutdowns, see Yoko (1987).
10   In 1973 Jap an produced nearl y 34 mt of vessels whereas in 1986 it had or ders
     for only 3 mt .
11   The People' s Republic of China is now th e largest m ark et for Jap anese ex por ts.
     According to N ippo n Steel sta ff, th e company faces a mon opsoni st in China as
     all purchases are mad e by the state . It ap pears th at selling prices have not mad e
     for lucrati ve deals. But to maintain a sha re in such a large mark et and there by
     maintain cap acity utili zati on, N ip po n Steel co uld not renege on such deals
     (perso na l int erview, Ni ppo n Steel Co rporation, Tokyo, Oc to ber 1987).
12   The existence of enter prise unions and a semi-lifetime emp loyment system have
     fragmented lab or du e both to th e lack of horizontal trad e uni on m ovement
     (John son 1984 :13 ) and to th e presence of large and sma ll firm s. Temporary
     workers found in large firm s typ ically bear the brunt of retrenchment . Because
     of th e very specific nature of skill development th at canno t be utilized in ot her
     sectors, in a pro longe d downturn red unda nt lab or from th e in du stry is generally
     difficult to absorb (Koike 1987:30 7-8).
13   Other areas included com puters, commu nications techno logy, education and
     man agement programs, security services, construction and engineering, mail ord er
     business, tr avel agency, and deep sea explora tion. Most of th ese were unsuccessful.
     N ippo n Kok an had alrea dy esta blished a biot echnology plant in 1987 at its
     Keihin Works (plant visit, Keihin Work s, Tokyo, Oc to ber 1987).

1    The entre preneur M r Jam shed Tata , the found er of Tata Iron and Steel Com pany
     (TISCO) failed to ra ise cap ita l in London at the tu rn of th e century bu t cou ld do
     so later in Indi a itself (Etienne et at. 1992 :49 ).
2    The sectoral distribution of uncoated flat products, items pro duce d by th e state -
     ow ned enterprises, shows th at 21.4 perce nt of 1986 outp ut was absor bed by th e
     tran sportati on sector (Inst itute Brasileiro de Sider urgia 1987:2/4 ). Close to 20
     percent of to ta l output of thi s product is dir ectly relate d to vehicle pr oduction
     (ibid.: 2/6) . In 1995 th e Brazilian auto industry absor bed 14 percent of total
     domestic sales, representing 23 percent of flat pro ducts (Instit ute Brasileiro de
     Sider urgia 1996 :2/4-2/5). Th ough privati zed in th e 1990 s, th e supp liers of th ese
     pro ducts are th e erstw hile sta te-owned firms .
3    The creation of Aut o Lat ina in the 1980 s by Volkswagen, Ford, and GM test ifies
     to this influ ence. In 1987 th e Brazilian govern ment imp osed price ceilings on
     automobiles, which VW and oth ers blatantl y defied. The govern ment th reatened
     to sue th e offending par ties but later withdrew th e charges.
4    Typically in a mon op oly situa tion price go uging is ro utine and th e depend ence
     of steel users on steel produ cers exceptionally high . Thi s depend ence was echoe d
     by one m ajor cus to mer of PO SCO (perso na l inter view, Uni on Steel, Pusan,
     October 198 7). Ho wever, it appears it had less to do with high prices and more
     to do with supply rationing during boom period s.
5    For exam ple , in Korea, th e co ns tr uc tion indu st ry (itse lf an indicat or of
     infrastruc tura l development ) comprised over 50 percent of domestic demand,

                                           NO TES

     while auto mo biles, machin ery and th e app liance industries have increasingly
     absorbed rema ining steel outp ut. With 1980 as th e base, th e ind ex of steel
     consuming sectors in June 1987 was as follows: tot al manufactu ring 454 .5, metal
     prod ucts 275.6, machin ery 531.7, electr ical machin ery 602 .1, and tra nsportation
     equipment 37 4.3 (Korea Iron and Steel Association 1987:55, 57) .
6    Percival Farq uar, a Braz ilian entrepreneu r, attempte d to set up a large-scale, coke-
     based steel mill prior to World War I. H owever, regional and intern ati on al politics,
     and th e reluctan ce of foreign fin ance to " distu rb esta blished mark ets," th wa rt ed
     such a venture (Da hlma n 1978 :35 ).
7    In additio n, US Steel feared nation alization of pro ductive investment s in Brazil
     as it had recentl y lost its nickel operation in Finland becau se of Russian invasion .
8    As we saw in th e previou s chap ter, Korea also faced a similar hurdle at a later
     dat e. In th e Indian case, th e World Bank did agree to provide fund s for th e
     pri vat e sector plant expa nsion on th e condition th at th e Indi an govern ment
     unde rwrite th ese loans (Krishna M oorth y 1984 :86). In th e mid-1950 s and early
     1960 s the World Bank exte nded a loan of $ 127.5 million to the private integrated
     companies (Liedholm 1972 :20 ).
9    The Soviet Uni on declined to offer BOFs for th e Bhilai plant as the technology in
     th e Soviet Uni on was still un proven, a res po nse which par ad oxi cally bore
     significant affinity to US industr y' s techn ology stra tegy.
10   One is reminded of th e difficulti es th e Japanese faced with German kn ow-h ow
     for th e turn-of-the-century Yawat a Work s: cost overruns were fivefold and the
     design faulty (see M orris-Suzuki 1994 :80 ).
11   Wh en the state of M inas Gera is learn ed of federal state involvement in the COSIPA
     plant located in Sao Paul o sta te, it too deman ded one, leading to the crea tion of
     USIMINA S. The rivalry between the two sta tes is legend ary.
12   The Korean comp any, unlike USIM IN AS, re jected th e initi al Japan ese offer of
     sma ll blast furn aces. H owever, given Ja pan 's growing ind ustri al might, Korea
     was not perceived to be an economic th reat . As a res ult the Jap an ese also treate d
     the Poh an g project as a publi c relations opportunity.
13   Dastu rco, an Indi an cons ulting firm, and US Steel, at th e req uest of US Agency
     for Internati on al Development, pre pared th e fea sibilit y reports for th e Boka ro
     plant . There were differences in the engineering details and breakeven points in
     the two repor ts. The Soviet Union rejected Dasturco's pro ject report and prepared
     a new Detailed Project Report . The Soviet cost estimates were nearl y twice as
     high as Dastu rco's. Th e Indi an govern ment accep ted th e report witho ut fur th er
     scru tiny and th e Soviet Union, as a token gesture, reduced th e estima ted "exces s"
     cost by 5 percent. H owever, thi s tim e th e Soviet Union offere d BOFs, which were
     sma ller th an the indu stry sta ndard, but shied awa y from continuo us casters for
     the plant.
14   This plan t technically does not fall und er SAIL ma nage ment, the holdin g company
     for sta te-owned plants. As exec ution of a steel pro ject requires large doses of
     investment cap ita l, according to a SAIL staff, it is preferable to have the pro ject
     directly und er the contro l of th e Ministry of Steel. Th e multi ple center s for pro ject
     execution is another sign of institution al incoh erence.
15   Import content based on FOB prices has been estimated to vary from 22.9 percent
     for th e first stage steel meltin g shop (BOFs and CCs) to 69 .9 percent for the blast
     furn ace (D' Me llo 1986:183).
16   In th e co urse of an int erview, a N ip pon Steel sta ff memb er lament ed th at as of
     Octo ber 1987 th ere were no major or ders for eq uipment (perso na l interview
     with N ippo n Steel, Tok yo, Oc to ber 1987). See also Chapter 4 .
17   Some a uth ors , suc h as Tre bat (1983:96-8) rate d SID ERERAS as hi ghl y


     autonomous. This is doubtful, given the disastrous financial position of the
     company by the end of the 1980s.
18   Construction cost can be roughly disaggregated into site preparation costs, cost
     of equipment and associated internal infrastructure, external infrastructural
     development expenditures, manpower training, and interest payments during
     the period of construction for borrowed capital. Infrastructure development can
     be divided into three levels: plant offices, laboratories, maintenance and machine
     shops, warehouses, and so on; housing, energy supply (not production), water
     system, road/railways, and so on; and energy production, upstream activities,
     harbors, and so on (Astier 1985 :5- 9). The final expenditure on a steel plant can
     escalate significantly if there are dela ys in decision-making, financing and
     equipment, as well as currency fluctuations .
19   Of the total investment of Wl,649.4 billion for Kwangyang's 2.7 mt capacity,
     $479 million was obtained as foreign credits (Pohang Iron and Steel Company
     1987:3-4). About $200 million was "saved" because of fierce bidding among
     equipment suppliers (Paine Webber 1985 :1-6) and roughly $38 million was to
     be paid as compensation to Kwang yang village (Paine Webber 1985:2-6) . POSCO
     proudly declared that its investment cost of $63 7lton was less than 43 percent of
     the standard $1,500Iton cost in the world economy (Pohang Iron and Steel
     Company 1987:6). But infrastructural expenditures on roads and harbors for
     Kwangyang incurred by several governmental agencies have not been included
     in POSCO's figures .
20   It is doubtful that the volume of exports of iron ore from the region is equal to
     the imports of coking coal for the plant. Thus the location of the plant justified
     on the basis of transportation costs is questionable.
21   The new plate mill in the Bhilai plant was installed at a time when the demand
     for the product was quite weak.
22   With the recent depreciation of the Korean won, POSCO's asset value is likely to
     be considerably lower. However, technologically POSCO is solid and hence its
     market value ma y be understated .
23   SAIL is over 95 percent unionized under 220 unions and officer associations
     nationwide (Venkata Ratnam et at. 1995 :260) .
24   During expansion of capacity when workers are engaged in construction work
     for several years the y are likely to demand permanent employment. The wages
     of regular and contract workers are significantly different with the contract
     workers entitled to a minimum wage with no benefits . But it is public knowledge
     that a portion of the minimum wage is pocketed by unscrupulous contractors.
25   In the past the Ministry of Labor firmly controlled all prominent unions of Brazil.
     All activities of unions were subordinated to the "national" interest through the
     Consolidated Labor Laws (CLT) of 1943. In the event of a perceived threat to
     the national interest the Ministry of Labor had jurisdiction to take over the
     administration of the unions by dismissing elected officers and replacing them
     by state appointees. Workers annually contributed a day 's worth of wages to the
     Ministry of Labor, which was redistributed to unions on the basis of membership.
     Since total workers exceeded the number of union members in a specific industrial
     branch and as the funds were used for the benefit of union members onl y, there
     was no incentive to recruit more members (Keck 1984:27) . Under no
     circumstances could these monies be used as a strike fund .
26   During 1955-60, the average number of work stoppages was 79, during the
     1963-71 period the average dropped to 15 (Deyo 1987:186). The 1986-9 average
     was nearly 1,900 as workers became increasingly aware of their rights and their
     solid contribution to the Korean economy (see 1m 1992:17) .

                                         NO TES

27   From 1977 to 1986, th e average number of hours worked per week in Korea
     was consiste ntly over 52 and inc rea sed nearl y 4 perc ent du rin g thi s peri od
     (Internationa l Labo ur Organi zati on 1987). Wom en wor kers have wor ked even
     hard er in the manufacturing sector. In th e iron and steel industr y, South Kor ean
     workers on average have worked nearl y 40 percent mor e tha n th eir Jap an ese
     counterparts. See also Cha kravarty (19 87) for a discu ssion of th e relationship
     between number of hours worked and capita l accumulat ion.
28   Poo r countr ies are particularl y vulnera ble to such in stitutional wea knesses. For
     exa mp le, Bangladesh in 1967 received Ja panese assista nce to set up a steel mill
     on a turnkey basis. Three 60-to n OHFs were supplied with a capacity of 150,000
     ton s. Late r, another OHF was added and th e " designed" capacity raised to
     250,000 ton s. The plant never atta ined mor e th an 135 ,000 ton s. It is ludi crou s
     to imagine how a single 60-to n OHF could pro du ce 100 ,000 tons when th ree of
     th em were designed to pr oduc e 150,000 to ns (M ujrahid 1997:2 ). Thi s is clearl y
     an exa mp le of recycling obsolete technology by th e Ja panese, im posing a form of
     struc tura l depend ence, and th e institution al and techn ological incom petence of
     th e local autho rities.
29   For th e initi al lo an of $7 00 million, the repayment peri od was six years and
     int erest at Libo r (Londo n Int erb ank Offer Rate) plu s 1.25-1.375 spre ad (CST
     1985:14 ). Alth ou gh loan s from domestic sources carr ied repayment periods of
     16-132 months at 5.5- 10.5 percent th ere was littl e cap ita l eq uipment bought
     from domestic sources . The high cost of th e plant along wit h domestic price
     controls added to th e finan cial burden, compelling th e Kaw asaki Steel Gro up
     and th e Finsider Gro up to reduce th eir voti ng stoc k to abou t 5.25 percent (Meta l
     Bulletin, Janu ary 18, 1988 :27 ).
30   Interestingly, CST initi ally had a leaseback agreement on its coa l yar d and coke
     batteries, which ultim at ely had to be bou ght for cash with the help of Ja panese
     banks. It may be recalled th at the Ja pan ese-aided USIMINA S also experience d
     cost overru ns. In 1982 USIMINA S unsuccess fully tried to sell bond s worth $43
     million to th e Japan ese. Th e Jap anese did no t perceive th e rate of return to be
     adeq ua te.
31   It is not th at In dian planners and engineers were not aware of th e techn ological
     possibilities. In fact Da stur and Co mpa ny, th e Indian steel cons ulta nts, had
     reco mmended 200-300-ton BOFs and requested continuo us casters. In stead th e
     Boka ro plan t ob tained 100-ton BOFs and no CC (Lall 198 7:86).
32   It m ay be mention ed that site selection has been partl y influ enced by a major
     agita tion in 1966 in Vishaka patnam, dema nding th at a steel plant be located
     th ere. Another int egrated plant to ha ve been buil t in Parad eep on th e easte rn
     coas t in volved several negoti ations with suppliers, parti cularl y British and West
     Germa n, with various terms and conditions that were frequ entl y revised . This
     was at a tim e when th e adva nced capita list countries were und ergoing a severe
     recession . N o techni cal stud y was conducted and ultim ately th e site proved to be
     unsuit able.
33   Of the six integrated plants in th e country, only Bhilai of SAIL and TISCO, th e
     privately owned plant, have been profita ble. Onl y since 1985-6 has th e Boka ro
     plant earne d a large eno ugh profit to wipe out its accumulate d losses. The two
     plants with the worst record have been Durgapur and lISCO in the state of West
     Bengal. Th e perform ance of th ese two plant s has been so poor th at the accumulated
     losses no w exceed th e value of capital assets employed. Production could continue
     only with subsidies. It was politically unfeasible to write off th ese plants.
34   Local content in plant construc tion increased from 34 percent in 1961 for th e
     first three 1.0 mt plants to 64 percent in 1978 and 90 percent in 1988 for Boka ro's


     first and second stages respectively (Kojima 1991:6). TISCO's local content
     achievements were similar to those of Bokaro.
35   POSCO obtained the normal rate of output from its first blast furnace in 107
     days, six months earlier than the Japanese had anticipated from their experience
     (see Kang 1994:184-5). Designed capacity was easily exceeded after the fourth
     month. Similarly, the time taken to attain normal capacity from start-up became
     shorter: 80 days for the second blast furnace, 70 for the third, and 29 for the
     fourth . For Kwangyang's first blast furnace it was only 23 days.
36   Typically, new employees attend high schools to cover technical and steel-related
     subjects. Technicians and other skilled workers who operate equipment are
     generally recruited with engineering qualifications and are given a combination
     of several years of plant-specific experience and training by foreign suppliers.
     Other more skill-demanding activities such as incremental improvements in
     technology, purchasing foreign equipment, and designing process and products
     require additional years of experience (see Enos 1991:81).
37   Since annual Indian vehicle production is still low, the production of high -quality
     auto sheets may not be feasible due to economies of scale requirements. However,
     this reasoning does not take into account the possibility of enlarging markets by
38   TISCO, with a third of SAIL's production, exceeded SAIL's R&D spending of
     Rs 5.22 billion by Rs 1. 7 billion.
39   Enos and Park (1988 :210-11) show that many employees who quit POSCO
     subsequently work for Korean firms that are also suppliers to POSCO. In this
     sense one can speak of diffusion of skills, with POSCO a leading center for
     human capital development.

1    US steel consumption peaked in 1973, thereafter declining by over 30 percent.
     In the European Community and Japan consumption also peaked in 1973 .
     However, their declines in demand were less sharp, 20 percent and 11 percent
     respectively. On the consumption side, substitutes such as plastics, aluminum,
     lighter but stronger steels, and the reduced size of automobiles had a marginal
     effect on demand for steel in the US. The overall consumption of steel in the US,
     including indirect trade in steel, remained relatively stable in the 1980s. Barring
     1982, a major recession year, total usage averaged 98.5 mt in 1980-5 (Locker!
     Abrecht Associates, Inc. 1985:51) . In 1986 this figure rose to 113 mt.
2    The breakdown in the Keynesian consensus and fiscal overload has introduced a
     generalized deregulation trend. However, the magnitude and pace of state
     withdrawal varies from one country to another.
3    Net indirect imports amounted to -3.0 mt in 1980 and 4 .2 in 1984. By 1986
     they had risen to 9.3 mt (Iron Age, January 1988 :28) . Motor vehicles, stampings,
     and parts and accessories comprised 62 percent of this total. By shifting their
     strategy from direct exports of steel to indirect exports, overseas products have
     exposed other industries to import penetration.
4    From 1960 to 1980, Japanese steelmaking capacity increased by 462 percent,
     while domestic consumption more than tripled.
5    Low domestic prices enabled foreign auto companies to be internationally
     competitive. For example, the automotive industry consumed about 18 percent
     of Brazil's uncoated flat products and exported a third of its output (Metal
     Bulletin, June 15, 1989:22).

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6    In 1988 construc tion and conta inerization absorbed 73 percent of domestic steel
     shipments to th e western region .
7    Durin g 1959-70, nati onal imp ort s of steel increased by over 200 percent, and th e
     western region absor bed a disproportionate sha re. Durin g the same period impor t
     penetrati on (imports as a share of apparent consumption) for the US as a whole
     increased from 6 percent to over 14 percent . Ho wever, for the western region the
     increase was far greater- fro m 12 percent to 28 percent (US Intern ati on al Trade
     Commission 1989a : 4-1 ). Imp ort penetra tion in the western region peaked in
     1984. It has since declined but remains ab ove th e nation al average.
8    The data is for M arch 1996 for a ton of cold-ro lled sheet . It was estimated
     originally by Paine Webb er. See Kor ea Development Bank (1997).
9    US firm s have also lost th eir competitive adva ntage in steel engineer ing services.
     M est a Machine, a wo rld renowned Amer ican sup plier of steel techno logy, went
     bankrupt in the 1980 s and was bou ght off by a Chinese firm .
10   There had been for eign investm ent s in th e American steel industry in th e 1960 s
     and 1970 s (Hall 1997:184). Ho wever, virtually all of th em were in sma ll-scale,
     non -integrated pr oduction. M ost investors were outsi de th e steel business, whereas
     foreign investment in the 1980s has been largely in th e integrated segment , mainly
     in finishin g facilities. All of th e foreign partners are in the steel bu siness in th eir
     home countries.
11   A N ippo n Steel sta ff memb er op ined th at N ippo n Kok an ' s decision to ow n 50
     percent of Nationa l Steel was hasty and unw ise. According to him, Na tiona l's
     steelma king units were ob solete and therefore were expec te d soo n to requ ire
     replacement, enta iling lar ge investments. With intern ation al price com petition
     thi s investment seemed irr ati on al at th e tim e.
12   See Aylen (199 4) for details on th e privati zati on of British Steel-ano ther well-
     kn own case.
13   The privatization mood in th e 1980 s did not produce goo d results. The state
     continued to domin ate the secto r and initial efforts at privatization failed dismally.
     For exa mple, COSIM , a seamless tube unit th at competed with Ger ma n-ow ned
     M annesman, was first targeted for privati zati on . But, given th e low rates of
     return and the liabilities involved, few private entrepre neurs were willing to assume
     ownership. COSIM and thr ee other unit s rema ined unsold in th e 1980s. H owever,
     th e relative success of the 1990 s privatiza tion, especially of th e steel industry,
     was no t foreseen by some of th e Brazilian ob server s (pers onal interview, Paulo
     Singer, CEBRAP, Sao Paul o, Novem ber 1987).
14   Recentl y Singapore -based Na tional Iron and Steel M ills announced plans to invest
     in Brazil' s Acominas plant (Straits Times , M ar ch 1, 1997), indi cating not only
     its pr ivatizat ion but also deepenin g int ern ati on alizati on .
15   The Sunflag Iron and Steel Company is one such N RI vent ure (Meta l Bulletin
     Mo nth ly, Jun e 1988:70 ). H owever, capacity, both old and new, in minimill s is still
     quite sma ll and such mills face various techni cal constraints in producing flat
     produ cts. Minimills have ab out 30 percent of the countr y's installed cap acity with
     155 units (Meta l Bulletin Mo nthly, Decemb er 1987:2). In some cases th e size of
     electr ic furn aces is almos t one-tenth that of many furnaces found in th e US.

                    AN D INDUSTRY RESTRUCT URIN G
1    In th e 1960s a minimill with annual capacity of 50,000-60,000 to ns co uld be
     set up for $5 million (see H ogan 1994 :76).
2    For exa mp le, in Brazil between 1987 and 1996 home scra p genera tion declined.


   It varied from 13.5 to 18.6 percent of crude steel production (Institute Brasileiro
   de Siderurgia 1996:619).
 3 The average price during 1975-87 for US No.1 scrap was $79.16/ton, and
   $111.33/ton for the 1988-96 period .
 4 EAF production is highly vulnerable to scrap prices . For example, in 1985 when
   scrap was $90Iton, operating cost was $244Iton. With scrap prices around
   $140, and assuming no technical change, costs would have been $306/ton. In
   1988 the price of scrap varied between $90-$140/ton in the US (CRU Metal
   Monitor: Steel, various issues; Iron Age 1988:36). As scrap usage increases,
   importers of scrap are liable to pa y higher prices . In 1988 Hyundai of South
   Korea paid $140/ton for US prime scrap . Prices of scrap in India have been
   known to touch $200/ton.
 5 Improvements in EAF include reduced time for producing liquid steel (from 180
   minutes in 1970 to 55 minutes now), consumption of electricity from 600 kwh
   to 430 kwh, and reduced electrode consumption from 12 lb/ton to 0.4 lb/ton
   (see Cyert et al. 1996 :32).
 6 Both DRI and HBI are made from iron ore. By removing oxygen by a
   reductant, iron-ore lumps, pellets, and ore fines can be charged into an EAF in
   lieu of scrap. HBI is similar to DRI, except that it is in the form of briquettes.
   This makes transportation of HBI safer than DR!. There is also iron carbide
   made by reducing iron fines with natural gas. Iron carbide is considered
   superior to DR!.
 7 Using DRI, based on coal, cost of steel production has been estimated to be
   $320.07/ton, while for gas-based DRI the cost was $316.59 (US Department of
   Energy and Electric Power Research Institute 1987:5-15-5-16).
 8 Currently under Indian conditions, the COREX-BOF is the most expensive route,
   followed by the traditional BF-BOF and DRI-EAF in that order (Sengupta 1995).
 9 The percentage of output after ten years of commercialization of new technologies
   shows that the US has been the slowest in adopting the BOF and CC-15 percent
   and 8 percent respectively, while japan was the fastest with 40 percent and 16
   percent of output. However, in minimill thin-slab casting technology, the adoption
   rate has been reversed : 32 percent for the US versus only 3 percent for japan (see
   Schorsch 1996:46).
10 Hanbo relies on 70 percent scrap feed and the rest with DRI and pig iron . However,
   it aims to obtain 50 percent iron from its two COREX units, 30 percent from its
   DRI unit, and 20 percent scrap . The total cost of the project was over $5 billion.
11 In 1970 total production by EAFs was roughly 16 mt or 17 percent of total
   output (Uriu 1989:3). In 1995, the corresponding figures were 32.3 mt or 30
   percent (Japan Iron and Steel Federation, Monthly Report, September 1996:3).
12 Tokyo Steel withdrew its membership from the japan Iron and Steel Federation
   as it felt it was paying more in membership fees than other minimills because of
   its efficiency (personal interview, Tokyo Steel, Tokyo, December 1996).
13 Several Korean firms have shown interest in either setting up integrated plants
   or, as in the case of Hyundai, acquiring part of the POSCO's shares if and when
   privatized. However, no formal proposals have been presented (personal interview,
   Ministry of Trade, Industry, and Environment, Seoul, August 1995). As POSCO's
   prices are lower than other producers in certain products and since private
   producers perceive themselves as more efficient than state-owned POSCO, private
   Korean producers are confident of making money with a new steel business
   (personal interviews, Inchon Iron and Steel Co., Inchon and Hanbo Steel, Seoul,
   August 1995) .

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14 Jin dal opted for the CO REX process and th e tradi tion al BF-BOF route because
   of supply bottleneck s for scrap and gas-base d DRI (perso nal int erview, Jind al
   Vijaynagar, Mumbai, June 1996 ). Also, Jind al minimized th e risks by lat e entry,
   ant icipating tha t Voest Alpine (the technology supp lier from Austria) and PO SCO
   will ha ve tak en care of any outstanding techni cal problems.
15 Lall (19 87: 83) suggests tha t sma ller blast furn aces are better suited to using
   poor-qu alit y Indi an coke tha n are large-scale BFs. H owever, th e availability of
   imp orted coa l and th e need to keep abreas t of global techn ological cha nges mak e
   smaller BFs less competitive.
16 By Ind ian sta ndards, N DIL's planned workforce of 1,500 for a 3 mt output is
   rema rka ble (persona l interview, N DIL, Ca lcutta , June 1996). Essar of Indi a also
   has no uni on with a tot al wo rkforce of 1,400 for a 2 mt hot-rolled capacity. For
   refere nce : Tokyo Steel as a who le had 1,44 2 wor kers for 3.9 mt (pers ona l
   int erview, Tokyo Steel, Tokyo , Decemb er 1996). Its new plant at Utsun omi ya
   ($377 million in vestment) has 150 emp loyees for 800,000 tons of annual output
   (Tokyo Steel M anufacturing Co. 1996 :6).
17 Contrac t workers are employe d to redu ce overhea d costs and have been used in
   the industry to stem labor demand s. Ga llatin Steel used contract labor for slag
   processing, oil handling, and scrap receiving (Ritt 1995a), while security and
   cafeter ia services were provided by contrac t lab or in N UCO R's Hi ckm an plant.
18 Alth ou gh it is difficult to genera lize such coopera tive relations in other countr ies,
   th ere is some evidence that new mills elsewhere are attempting to institute a non-
   uni oni zed workforce through monetar y and other incenti ves. Ispat's Nagp ur
   plant in Indi a, for exa mple, has not had a wo rk sto ppage in twelve years, reflecting
   a very different indu strial relations enviro nment comp ared to th e Indi an integrated
   mills und er th e sta te secto r.

                       INDUSTRI AL RESTRUCTURIN G
 1   In 1995 PO SCO began its voluntary early retirement pr ogram . Only a sma ll
     number opted for thi s, bu t each volunta ry retir ee enta iled a cost of $ 186, 553
     (Pohang Iron and Steel Co. 1996 ), indi cating th e high cost of PO SCO ' s lab or.
2    In th e decad e followin g 1986, th e average age increased by th ree and a half
     years. While thi s in itself may not amo unt to mu ch, th e average length of service
     has also increased from 6.5 to 10.6 years, ind icatin g older wo rkers.
 3   In particular, comp uterization and increased auto mation, linking CC with rolling
     processes, and synchro nizing vario us ro lling pr ocesses are being emphas ized to
     red uce energy and lab or cos ts. Pre-treatment of hot metal, seconda ry refining
     prior to cha rging in th e BOF, and other incremental changes in th e BOF, CC , and
     ro lling mills are being attem pte d to obta in new and bett er-qu alit y pro ducts.
     Technology has been esta blished to exte nd the life of BFs by another ten years
     and artificial int elligence systems are being increasingly applied for the operation
     of th e BFs (Japan Iron and Steel Federa tion 198 7:6-7).
4    The pre diction made by th e US Na tiona l Aca demy of Engineerin g regarding th e
     "inhere nt limits on th e amo unt of steel th at [could] be derived from scrap in th e
     lon g run " is still valid; th e diffu sion of minimills based on scra p substitutes is of
     course another m atter (see Na tiona l Acad emy of Engineering 1985:2 8).


Institution                               Place, Cou ntry            Year

Acorninas                                 Belo H orizonte, Braz il   1987
American Iron and Steel In stitu te       Was hington, D .C. , US    1988
Business Korea                            Seoul, Korea               1987
Ca rnegie Me llon University              Pittsburgh, US             1995
Ca tho lic Uni versity                    Sao Paulo, Brazil          1987
CEBRAP (Center for Braz ilian             Sao Paul o, Braz il        1987
    Research and Policy Ana lysis)
Centre for the Stud y of Social           Calcutta, In dia           1987, 1994
    Sciences, Ca lcutta
Chiba Uni versity of Commerce             Chiba, Japan               1996
CONSIDE R (M inerals Division ,           Brasilia, Brazil           1987
    M inistry of In dustry)
CST (Co rnpa hfiia Sidenirgica            Tubarao, Brazil            1988
Dav y-Inte rnationa l                     Pit tsbur gh, US           1995
Durgapur Steel Plan t                     Dur ga pur, In dia         1987
Essar Steel                               Mumba i, In dia            1996
Fundacao Getulio Vargas (FGV)             Sao Paulo, Braz il         1987
H allym University                        Chu ncho n, Korea          1995
H anb o Steel                             Seoul, Korea               1995
lISCO (In dia n Iron and Steel            Burnpur, In dia            1987
    Co mpany)
Inch on Iron and Steel Co.                Inch on, Korea             1995
Institute of Develo pin g Eco no mies     Tokyo, Japan               1987
Instituto Brasileiro de Siderugia (IBS)   Rio de Jan eiro, Brazil    1996, 1997
Ja pan Iron and Steel Federation          Tokyo, Japan               1987, 1991, 1996
j aw ah arl al Ne hru Univers ity         New Delhi, In dia          1987,1991, 1992
Jind al Nagarjuna                         Banga lore, Indi a         1996
Jin dal Vijaynagar                        Mumba i, India             1996
Join t Plan t Co mmittee                  New Delhi , India          1987
Keihin Works                              Tokyo, Japan               1987
Korea Development In stitute              Seou l, Korea              1995
Korea In stitu te for Ind ustri al        Seoul, Korea               1987, 1995
    Eco nomics and Trade
Library of Co ngress                      Brasilia , Brazil          1987


Long Term Credit Bank                        Tokyo, ]apan              1987
M .N.Dastur & Co.                            Calc utta, Ind ia         1996
Mannesman-Dem ag                             Pit tsbur gh , US         1995
Maruti Udyog Ltd                             New De lhi, Gurgaon,      1987
                                              In dia
Massachusetts In stitu te of                 Cambr idge , US           1985
   Techno logy
M inistry of Commerce and Ind ustry          Brasi lia, Brazil         1987
M inistry of Co mmerce and Indu stry         Seou l, Korea             1987
Mi nistry of Cu lture                        Brasi lia, Brazi l        1987
Mi nistry of Trade, In du stry, and          Seou l, Korea             1995
   Environme nt
Nippon Demo Ispat Ltd                        Calcutta, In dia          1996
Nippon Steel Corporation                     Tok yo, ]apan             1987
NK K Corporation                             Tokyo, ]apan              1987, 1991, 1996
Planning Commission                          New Delhi, In dia         1987, 1991, 1994,
Poh an g Coated Steel Co .                   Poha ng, Korea            1995
Poha ng Steel Ind ustry Co.                  Po ha ng, Korea           1995
PO SCO (Poha ng Iron and Steel               Seou l, Poh an g,         1987, 1995, 1996,
   Co mpany)                                  Kwa ngya ng, Korea         1997
PO SRI (POSCO Research In stitu te)          Seou l, Korea             1995
PO ST ECH (POSCO Techno logical              Po ha ng, Korea           1987, 1995
Ras htri ya Ispat Nigam Ltd                  New De lhi, India         1987
RIST (Research In stitu te of In du strial   Poha ng, Korea            1995
   Science and Techno log y)
Sammi Steel                                  Cha ngwon, Korea          1995
Samsung H eavy In dustry                     Pitts burgh, US           1995
Samsung H eavy In dustry                     Cha ngwon, Korea          1995
SIDERERAS                                    Brasi lia, Brazil         1987
SMS                                          Pittsbur gh , US          1995
Spark Steel & Eco no my Research             Calcutta, In dia          1994, 1996
Steel Authorit y of In dia Ltd               New Delhi, In dia         1987, 1992, 1997
Tipp in -Sarnsu ng                           Pitts burgh, US           1995
TISCO (Tata Iron and Steel                   Calcutta, In dia          1987, 1996
   Co mpany)
Tokyo Steel                                  Tokyo, ]apan              1996
Unio n Steel                                 Pusan , Korea             1987
Univers ity of Pit tsburgh                   Pitts burgh, US           1995
Usim inas                                    Ipatin ga, Brazi l        1987
US Intern ati on al Trade Co mmission        Was hington, D .C. , US   1988, 1995
Voest -Alpi ne                               Seou l, Korea             1987


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Abramovitz, M . 12, 96                           106,107,121,131; National Steel
Acs, Z .]. 22, 148                               Company (CSN) 83, 89, 91;
Adams, W. and Mueller, H . 22, 37, 38,           USIMINAS 89, 92, 93, 113, 136; see
   40, 53, 69                                    also SIDERBRAS
Aglietta, M . 6, 17                           Brenner, R. 16, 184 n2
American Iron and Steel Institute 3, 31,      British Steel, UK steel industry 37,64,
   54,122,147,149,151,178                        66, 92, 94, 100, 106, 188 n7, 190
Amsden, A.H . 5, 15,21,65, 96, 105,              n30, 195 n32
   106, 114, 115, 133                         brownfields and rounding out 46-47
Arthur, W.B. 15, 16
automotive industry 14, 33, 35, 61, 82,       California 38, 43, 116, 124, 189 n12;
   87, 100, 115, 121, 125, 128, 129,             see also US west coast
   150,164,175,189 n15, 192 n2, n5,           Canada 1,124-125,160
   196 n3 7, n3; see also Honda,              capacity utilization 23, 31,48,60, 73,
   H yundai, shipbuilding industry, steel        74,75,97,109,110,111,123,125,
   prices, Suzuki Motors, Toyota                 143, 182, 184 n5
Athre ye, S.S. 33, 36                         capitalism:accumulation (as a system of)
                                                 8, 12, 20, 169, 183; cartels (also
Baer, W. 22, 91, 92, 93                          Pittsburgh Plus system) 16,23, 37,
Bagchi, A.K. 12, 185 n7, 186 n18                 73, 75, 86, 110, 188 n8, 191 n5;
Balassa, B. 2, 13                                national regulation of 6, 68, 74, 117,
Bardhan, P. 19, 187 n23                          132, 137, 138, 140, 167, 174; self-
Barnett, D.E and Crandall, R.W. 22, 35,          regulation of 16, 23,30,48,51, 80,
   40,49,142-144,146-148,164-165                 119, 167, 183; state-led regulation of
Barnett, D.E and Schorsch, L. 13, 38,            9,16,28,48,57-59,82,85,167,
   124, 127, 148                                 183; theory of regulation of 16-20,
BNDE (The National Bank for                      173; see also industry structure, long
   Economic Development, Brazil) 87,             waves, state intervention
   92,93,114                                  capitalist crisis and excess capacity 1, 5,
Borrus, M . 40, 55,188-189 n11                   16,27,30,57,72-76,80,120-121,
Boyer, R. 12, 17, 20                             169, 173, 182; see also industrial
Brazilian steel industry 2, 7, 13, 22-23,        maturity
   71,83-8 7,91-94,96-97,98-99,               capitalist competition 4,5,11-12,17,
   102,104,105,109,110,111,112,                  26-27,29,48-49,55,57,158-159,
   114,117,120-135,142,178;                      167, 172, 185 n8; profit and debt
   Acorninas 46-47,89,94,98,100,                 crisis 18,23,27,43-45,51-52,76,
   105,106-107,114; COSIPA 89, 92,               79,94, 107, 123, 156; see also
   93; CST 47,89,94,98,99,100,                   diffusion of technologies, innovations,


   investment crisis, profitability, state      investment crisis (leading to ) 22, 45-
   intervention, US steel industry              47, 137; see also access to
Carnegie Mellon University 1                    technology, capital cost, financing of
chaebols 87, 175                                technology
Chang, H . 13, 20                            equity, long-term loans 43-44,59,61,
China 132-135, 154, 162, 182, 187               63-66,69,75,91,93,96,107,114,
   n28, 192 n l l                               129,130,154,1 76
China Steel, Taiwan 3, 116, 133              Essar Steel, India 155, 161, 179, 199
Californ ia Institute of Technology 116         n16
Collor de Mello 2, 134                       Europe (Western ) 2, 3, 12, 22, 32, 66,
cost efficiency 35-36, 40, 71, 125, 150,        68, 106, 121, 166
   177,1 79                                  European Community (also EEC) 48,
cost of production 2, 13, 81, 120, 125-         53,122-123,125,142,190 n29
   128, 136-137, 148; exchange rate          Evans, P.B. 19, 86, 91, 187 n24
   movements 53, 74, 77, 81, 126-128,
   158,180-181,194 n22; operating            fast-second approach 8, 26
   costs 28, 60, 77, 123, 142, 146-          Fransman, M . 21, 187 n28
   147,151,154,165,172,198 n4,               Froebel, E 2, 18
   n7; see also labor costs
Crandall, R.W 22, 23, 40, 42,43, 44,         Germany (West) 1,64, 71, 91, 95, 108,
   53, 123                                      116, 154, 160, 191 n4, 195 n32
Cumings, B. 64                               Gersch enkron, A. 15, 19
CVRD, Brazil 93, 129, 130, 131               Gold, B. 30, 31, 37, 69,188 nl, nll
                                             Gordon, D.M . 6,1 7,18
Dahlman, c.j. 21, 85, 93, 104, 113,          greenfields 33, 46-47, 90-95, 97, 98,
    193 n6                                      99, 100, 102, 106, 114, 124, 128,
Dani eli, Ital y 155                            142,152-153,157,158,164,179,
Davy McKeelInternational, UK 98,                181; see also capital costs
    112, 114, 155
D'Costa, A.P. 2, 11,23,64,67, 101,           Hall. e.G. 129, 146, 150-51, 154, 157,
   112,116,162,164,175                          181,197 nl0
Deyo, nc. 96, 105, 194 n26                   Hamilton, e. 12, 96
direct reduced iron (DRI ) 27,100,148-       Heavy & Chemical Industry (HCI)
   150,152-158,160-163,166,1 79;                Program, Kor ea 65, 66
   see also HBI, scrap                       Hirschman, A.O. 15, 19
                                             Hogan, W.T. 22, 38, 43, 50, 53, 124,
East Asia 17, 19,57,60,64, 72, 74,              145,156,189 n16, 191 n2
   124,131,133,138,172,1 75                  Honda 129
East Europe (also bloc ) 93, 95,113; see     hot briquetted iron (HBI) 135, 152-
   also Soviet Union                            153, 161; see also ra w materials
Elster, ]. 20                                Howell, T.R . 21, 52, 53, 123
energy savings 35-36, 40, 148-149,           H yundai 135, 159, 198 n4
   150, 199 n3
Enos,].L. 15,21, 196 n36                     import competition 30, 41, 43, 119-
Enos,].L. and Park, W.H. 23, 25, 66,            125, 170; see also steel exports, steel
   102, 112, 115, 116, 196 n39                  prices, US economy
entre preneurship 1, 6, 9, 23, 28-29,        Indian steel industry 1,2, 7, 9, 22, 28,
   141,148,155-156,160-161,168,                 83-84,86,88-90,92,96-97,98,
   172,174-1 75,1 79; see also                  99, 102, 107, 109, 120, 125-127,
   minimills, Mittal, NU COR                    134-137, 141-142, 150, 155, 157,
entry barriers 1,9, 15,23,28,48,68,             175,178-180; Bhilai 97,101,103,
   140,155,167,173,1 79,182;                    108, 109, 110; Bokaro 84, 94, 95,


   108, 109; Durgapur 103, 109, 110;              186 n14, n16; changing
   Indian Iron and Steel Co. (lISCO )             competitiveness (through) 8, 9,12,14,
   47, 83, 85, 9~ 9~ 102, 103, 109,               26,60,69,87,123,129,147,165,
   110,111; Rourkela 84, 92,108,                  197 n9; disinvestment 48,55;
   109, 110, 112; Tata Iron and Steel             economies of scale (from) 2,15,23,
   Co . (TISCO) 83, 84, 85, 86, 90, 92,           25-26,31,33,40,46,60,69,70,74,
   94, 102, 104, 110, 126, 180, 192               81,83,97,100,109,143,151,182;
   n1; Vishakapatnam (Vizag), India               incremental innovations 24-25,38,
   46-47,90,95,98,99,100,102,                     113,115,148-149; leapfrogging with
   103, 106, 108; see also Rashtriya              6,22,141,167,178; productivity
   Ispat Nigam Ltd (RINL), SAIL                   (associated with) 12, 16,23,26, 101,
Indonesia 1, 116, 135, 160                        103-104, 110, 113, 115, 123, 125,
industrial maturity 4-7, 13, 16-17,22,            136-137, 149, 164-165, 181; radical
   24-27,58,73,81,139,172,196                     innovations 148-149, 177; research
   n1; see also japan, steel intensity            and development 56,68,116, 128,
   use, US, Western Europe                        177-178, 187 n26, 196 n38; strategic
industrial relations 9, 31, 40, 55, 103,          adoption of 41,48,66,69, 73, 80,
   105,155,163-165,167,176-177,                   126, 170, 177; suppliers of innovation
   182; employment 102-105, 130, 136,             61,64,65-66,68,91,92,95,98,101,
   147,159,164; flexible practices 9,             106-107,114,156-157,170; see also
   115,155,165,167,172,174,177;                   capacity utilization, capitalist crisis,
   labor strikes 41,105-106,194 n26;              cost efficiency, entry barriers, industrial
   non-union labor 54,105,147,155,                shifts, institutional capability, labor
   164, 199 n18; subcontracting 104-              productivity, path-dependence, steel
   105,116,199 n17; trade unions, also            technologies, strategic industrial policy
   work force 52, 77-79, 96, 103, 106,        institutional capability 5,9, 15, 19-20,
   164,172,177,190-191 n31, 192                   26-27,66,82-83,96-97,100-102,
   n12, 194 n23, n25, 199 n16, n1;                105, 106, 120, 123, 127, 166-167,
   United SteelWorkers of America                 172,175-176,186 n21, 193 n14,
   (USWA) 53-54; see also innovations             195 n28; see also state intervention
   (productivity), labor productivity         institutional change 2, 6, 9,48,51-55,
industrial shifts : comparative advantage         119,134,136,138,155,163-165,
   (leading to) 2, 4, 6, 8, 12-14,37,             168, 170, 173; see also flexible
   64,169,182-183; international                  practices, joint ventures,
   division of labor 1, 2, 9, 18,26-27,           privatization
   29, 74, 119, 121-122, 129, 137,            Institute Brasileiro de Siderurgia (IBS)
   140, 178; institutional explanations           84,89,94,102,133,142
   of 28-29; phases of 7-8, 72-73;            interdisciplinary analytical framework
   regional shifts 38-39; see also                7,8, 12,21-28
   capitalist competition, US west coast      International Iron and Steel Institute 3,
industry structure 2, 26, 39, 58, 68, 69;         71, 111
   mergers, concentration 31-32, 48,          ISCOR, South Africa 151
   51,58,185 n13, 189 n17, n18, 190           Ispat and its affiliated firms 155, 157,
   n25, n26, n27, 191 n7; oligopoly,              160-161; see also Mittal, Nippon
   monopoly, vertical integration 2, 15,          Denro Ispat
   16,22,28,37,39-40,85,155,167;              Italy, also Finsider 64, 94, 106, 131
   see also economies of scale,
   innovations                                japan 12, 16,23,43, 57, 64, 94, 134
innovations 1,4, 7, 9,27,36,97, 116,          japan Iron and Steel Federation 41,56,
   148-149,184 n4, 185 n14, 188 n1, 2,           62, 72, 77, 78-79, 100, 127, 130,
   3,6; access to technology 15, 19,24,          142, 159
   64-65, 68-{i9, 82; bunching of 185-        japanese government, also MITI 59,

                                       IND EX

   61-63,65,67,68, 70, 73, 74 , 75,              97, 101, 113, 114, 116, 160; Union
   93, 145, 190 n25, 191 n5                      Steel 115, 192 n4; see also pasco
Japanese steel industry 7, 9, 22-23, 31-      Kor ean War 38, 60, 61, 62, 65
   33, 40- 4 1, 45, 4 8, 56, 58- 59 , 65,     Krishna Moorthy, K. 84, 85, 93, 104,
   68, 70-72, 74-80,81,8 7,91, 94,               108, 110, 112, 193 n8
   97, 100, 102, 106, 111, 116, 120-
   126,128,12913 3,137,142-146,               labor costs 17, 77,123-127,147,150,
   154-156,159,165,180-181 ; Fuji                  172; see also wa ges
   Steel 33 , 68, 71, 74; Japan Iron and      labor productivity 54, 74, 110, 123,
   Steel Compa ny 32-33, 68; Kamaishi              127-128,138,147,1 72
   Works 58, 59, 78; Kaw asaki Steel          LaII.S. 5, 21, 199 n15
   40, 77, 79, 94, 100, 106, 129, 130,        lat e industrializing countries 2, 9, 21-
   131; Kimitsu Works 72 , 77 ; Kob e             22,24,26, 61,82,83, 91, 92, 95,
   Steel 79 , 129, 130, 155, 158, 161;             140,142,167,1 70,1 75,182; see
   Kyoei Steel 154, 158 ; Nippon                  also stat e intervention, Brazil, Indi a,
   Kokan (also Keihin Works ) 56, 76 ,            Japan, Kor ea
   77, 78, 100, 129, 130, 156, 158,           Long Term Credit Bank of Jap an 62-63
   192 n13; Nippon Steel Corpora tion         lon g waves 17-18, 172, 185-186 n14
   (NSC) 3, 56, 58, 59 , 63 , 65, 69, 70,
   71, 77,78, 8~ 93, 100, 129 , 130,          M .N .Dastur & Co., Indi a 162, 178,
   154, 156, 158 ; Nisshin Steel 79 ,            193 n13, 195 n31
   129; Sumitomo Steel 77 , 79, 130,          M annesman Demag, Germany 150,
   154, 155, 157; Tokyo Steel 76, 154,           154, 155, 157
   157-159,1 98 n12, 199 n16 ;                manufacturing sector 43-44, 74, 105,
   Yawat a Works/Group 32- 33, 58,               128, 189 n1 9; see also automotive,
   59,63,68, 70, 72, 74, 75                      shipbuilding
Jindal, Indi a 151, 162, 166, 179, 199        mark et/economic liberaliz ation 64, 87,
   n14                                           134,137-13 9,160,1 75,1 78,18 7
Johnson, C. 19, 25, 63                           n23
joint ventu res 2, 9, 18,27,48,51-52,         M arkusen, A. 12, 18,22, 54, 186 n1 7
   77, 119 , 129- 132, 135, 137- 13 8,        M arx, K. 14, 19, 165, 184 n2, 185 n11
   154-156, 174-1 75                          M assachus etts Institute of Technology
Kang,J .66,67, 75, 114, 115, 126,             Meiji regime 3 1, 58
   143,145,1 96 n35                           Mesta Machine 56, 91, 197 n9
Kaw ahito, K. 22, 62, 75                      Mexico, also H ylsa 1, 155, 160
Keidanren 130, 154                            Midrex 155, 161
kereitsu 158, 175, 191 n6                     Mittal 1, 160
Korea Iron and Steel Association 41,          Moreira, M .M . 13, 20
   42, 72, 89, 102                            Morris-Suzuki, T. 32, 58, 59, 68, 70,
Korea (South), govern ment 1, 7, 9, 13,          188 n3
   57,63-67, 91, 96, 98                       multinationals (transna tional
Korean steel industry 22-23, 58- 59, 69,         corporations ) 17,29,86,100,121
   71,73-74,77, 81, 84, 89,98-99,
   100,102,106,109, 110, 111, 112,            Nakamura, T. 61, 190 n25
   114,117,120-133,142-145,157,               Na tiona l Academy of Engineering 44,
   170-172,1 79-181; H anbo Steel 85,            97 , 189 n1 9, 199 n4
   150-151, 155, 157-160, 166, 181;           Nelson, R.R. and Wright, G. 14, 16, 18
   Inchon Steel 159-160; Kwangyang            New Steel 149, 157, 161
   Work s 47,65-67,69, 98, 99, 100,           Nippon Denro Ispat, Indi a 160, 166,
   101,106,112,113, 114, 160, 181,               199 n16; see also Ispat, Mittal
   191 n4; Pohan g Works 65-67, 69, 93,       non-resident Indian (N RI) 136, 197 n15


NUCOR, also Kenneth Iverson 1 150            Schumpeter, J.A . 14, 165, 185 n14, 187
  153-158,166                 "                  n25
NUCOR plants: Berkeley, SC 156;              scrap (and home scrap) 33-34 40 68
  Charleston, SC 157; Crawfordsville,            70, 100, 137, 142-143, 146-149, '
  IN 156-157, 160; Hickman, AR                   159,160,163,179,180,198 n3,
  156-157,160,164-165                            n4; raw materials 134, 148, 181; see
                                                 also scrap substitutes
Office of Technology Assessment, US          Sengupta, R. 101, 104, 115, 116, 125,
   Congress 45-46                                150, 162, 163, 198 n8
Ohio 38, 50                                  Shinohara, M . 22, 61
Oster, S. 22, 40                             shipbuilding industry 64 75 76 82
overstating 24, 103, 104, 110, 127               87,121,191-192 n9: n10 ' ,
                                             Shorrok, T. 64, 66
Park Tae Joon 65, 69                         SIDERERAS 3, 85,93, 100, 107 108
Park Chung Hee 64-65, 96                     Singapore 197 n14                   '
Paine Webber 47,73,106,109,115,              SMS Schloeman 150, 154-155, 157-
   125-127,146,153-154,178,191                   158, 160
   n4                                        Soviet Union (also Russia, CIS) 92, 95,
Paskoff, P.E 31, 188 n8                          96,101,106,112,121-122,181,
path-dependence 2,5, 15-16 21 24                 193 n7, n9, n13
   25,27,37-38,40,162,184-185'               state intervention 4 32 58-67 80-87
   n6; see also industry structure               169,174-175; defi;its and debts '
Pittsburgh 1,39,52, 189 n15                      (resulting from) 6, 8, 123, 136, 138,
Pohang Iron & Steel Co . (POSCO) 1, 2,           170,181; investment (as part of) 9,
   3,47,52,58,64-68,69,70,75,83,                 59-60,62,90,94,98,100,109,111,
   87,88-89,97,98,100,101,102,                   121,138,160,173; logic of 18-19,
   103, 104, 105, 109, 112, 113, 115,            21,61; Meiji regime 117, 186 n22;
   116, 128-134,138, 159-160, 166,               state owned firms (public sector) 2, 3,
   176,181                                       26,58,84-86,90,92,93,102-105,
PO STECH 116                                     109-110,113,115,117,131-132,
privatization 2,9,23, 84, 93, 94, 120,           134, 160, 167; subsidies, protection
   134-136,138,163,167,173,176,                  16,19,25,30,32,48,52,59,61,64,
   197 n12, 13; see also Brazilian steel         68,86, 96, 117, 167; trigger price
   industry, British Steel, Collor de            mechanism (TPM) 53, 128, 174, 190
   Mello, entrepreneurship                       n29; voluntary restraint agreements
profitability 75-76, 85, 86, 101, 108-           (VRAs) or quotas 52-53, 128, 132,
   109, 110, 116, 128, 136-137, 185              174, 190 n30; see also Japan, late
   n3                                            industrializing countries, POSCO,
                                                 SAIL, SIDERERAS, strategic
                                                 industrial policy
Rashtriya Ispat Nigam Ltd (RINL) 47,         Steel Authority of India Limited (SAIL) 3,
   95, 108                                       84,86,90,102,103,108,126,137
raw materials 33-34, 39 92 123-125           steel exports 27, 77, 89,124,132-134,
   150, 159; see also co;t ot'       '           171, 180; see also Brazil, Japan,
   production, scrap                             Korea, Western Europe, import
Rosenberg, N . 14, 18,21,69,185 nll              competition
   187 n25                             '
                                             steel intensity use 46, 189 n22
Rosenberg, N. and Birdzell, L.E. 31,         steel prices 37, 43, 53, 74, 75, 79, 83,
   186 n22, 188 n2                               85-88,95,107,108,109,117,123,
                                                 134, 138, 143, 196 n5; dumping
Sachs, J.D . 20, 187 n3                          52-53, 123; see also capital
Sakonji, T. 77, 80                               accumulation, state intervention
Schorsch, L.L. 151, 154, 198 n9


steel products:                                    environmental aspects 151, 153, 180;
flat products: 33-35, 77, 84, 87, 99,              financing of 22-23, 25,43-44,59,
    100,119,123,129,134,138,148,                   91-93,106, 114, 176, 189 n20, n21,
    154, 157, 158, 16~ 178, 182;                   195 n29, n30; hot strip mills 45, 50,
    galvanized and coated sheets 27,34,            66, 153, 181; integrated segment/
    77,100,115,121,128,131,135,                    process/plant 33-36,53,55-56,69,
    160, 181; hot and cold rolled coils/           71,82,84,92,95,96,98,102,104,
    sheen 34-35, 115, 121-123, 128-                105, 113, 120, 130, 132, 140, 146,
    135,154,160-165,178,181; plates                151-154, 159, 164, 175, 180;
    76, 78-79, 84, 121, 123, 178; semi-            investment in integrated 44-45, 109,
    finished steel, also ingots and slabs          128, 130, 162; minimills 2,9,33-35,
    26,33-34,37,53-54,71,98,99,                    53, 79, 140-144, 152-154, 156-157,
    100,106,121-123,128-131,133,                   160, 164, 177, 181; open hearth
    136, 138, 156, 181, 190 n30                    furnaces (OHFs) 22, 25,26,31-32,
long products: 35, 84, 100, 134, 142,              35-41,45,50,68,70,71,101,110,
    147,156,158,166,178; semi-                     111,146,177,188 n11; process
    finished blooms and billets 33-34,             controls 16, 71-72, 78-79, 80,98,
    37, 71, 100, 108, 154, 161, 188 n4;            177; rolling mills 8, 72, 91, 99, 100,
    wire rod 34-35, 76, 77, 100, 108,              129, 149, 154, 157, 163; suppliers of
    142,146-147,151,156,161,179                    (technolog y transfer) 5, 18, 21, 24,
steel technologies: basic oxygen furnaces          27, 67, 88, 191 n3; thin slab, also
    (BOFs) 22, 25, 26, 28,31-41,45,                EAF-based new generation minimills
    50,68,70,71,92,93,98,99,101,                   1,27,34,55,148-150,151-155,
    108, 11~ 111-112, 131, 137, 146,               156, 16~ 163, 165, 166, 17~ 18~
    148, 149, 151-153, 155, 156, 162,              see also brownfields, cost efficiency,
    163,177-178,181,187-188 n11;                   energy savings, entry barriers, equit y,
    Bessemer converter 31-32,35-37,                greenfields, innovations, long-term
    111, 177; blast furnaces (BFs) 25, 28,         loans, state interv ention
    31,33-35,41-42,45,50,69,70,                strategic industrial polic y 13-15,20,
    77,97,98,99,110,111,112,113,                   23, 25, 64, 83, 117
    121, 12~ 14~ 148, 151-153, 156,            Suzuki Motors 115
    158,160,163,177,181; capital cost
    of 31, 46-47, 67, 98, 99, 140, 145-        tapping ratio 112, 113
    146,151-153,162,189 n23, 194               technological capability 20, 80, 83, 95,
    n19; computerization/automation,              116,133,140, 160, 173;bes~
    microelectronics 116, 127, 149, 161,          practice, also state-of-the-art-
    164, 177, 199 n3; continuous casting          technology 20,24,44,69,95,97,
    (CC) 25, 33-37, 41, 71, 98, 99, 100,          104, 105, 157, 159; learning,
    101, 108, 11~ 111-112,116, 129,               learning-by-doing 9, 20-21, 24, 26,
    137, 146, 150, 153, 158, 163, 177,            109,111-116,127; see also capacity
    179; COREX 27,149-151,154-                    utilization, investment in steel
    156, 158-163, 166, 178-179;                   technologies, steel exports, strategic
    crucible process 31, 36; diffusion of         industrial policy
    4,6,7,9,11-12,14-15,20,22,24,              Thailand 133, 135
    26,29,30-32,38,40-42,54-55,                Tiffan y, P.A. 21, 37, 38
    68-72,81,83, 109, 111-112, 117,            Toyota 63, 129
    120, 123, 138, 141-143, 146, 155-          Tsuru, S. 61, 191 n5, n6
    157, 159, 161, 169, 177, 182, 187
    n29; electric arc furnaces (EAFs) 22,      uneven capitalist development 4-5,7-8,
    27,28,31-34,36,50,75,76,85,                   11-12,23,28-29,81,117,170,173;
    134,136-137,140-148,151-153,                  see also innovations, steel technologies
    158, 159-161, 163, 165, 178-179;           Uriu, R.M . 75,144,158,198 n11


Usinor-Sacilor (also France ) 3, 64, 106       Works, Utah 39, 52,131-132,189
US economy 12, 17, 30-31, 77 , 146-            n16; Pittsburg Works, California 52,
   147                                         131, 132; Wh eeling-Pitt 54, 129,
US Export-Import Bank 64, 66, 91               130; Youngstown Sheet and Tube
US government 37-38,52,59,64,66,               51-52
   91                                        US west coast 42-43, 53, 124, 128,
US International Trade Commission 43,          129,131-132,138,146,1 74
   52, 53, 101, 164
US steel industry 2,3, 7, 9, 23, 26, 30,     Venezuela 134, 135
   38-41,43-46, 50,52,56, 71, 75,            Vestal, J.E . 22, 32, 62, 68, 74
   76, 81, 94, 111, 113, 116, 118,           Vietn am 133, 135, 180
   120-121,126-129,133,135,137,              Voest-Alpine, Austria 38, 66, 70, 151,
   140,142-144,150,155-156,166,                 155,188 nl0, 190 n24, 199 n14
   172,1 76,181; ACME Steel 150,
   165; Armco 49-50, 129, 130;               wages 2, 13, 15, 19,26,32,40,54,
   Bethl ehem Steel (Sparrows Point) 39,       74-75, 105, 106, 125-127, 138,
   49-50,53, 189 n12; California Steel         147,164,172,180,185 n12, 191
   Industry 130, 131; Inland Steel 129,        nl2;see also labor costs
   130,161; Gall atin Steel 148, 156,        Wallerstein, I. 187 n24
   157,165,199 n17; Kaiser Steel,            Warren, K. 43, 124 , 189 n15
   Fontana Works 39,131,188 n13;             West Bengal, India 97, 103
   LTV Steel 51-52, 54, 130, 154;            Woo, J. 25, 91
   National Steel 39, 51-52, 129, 130,       work week 184 n2, 195 n2 7
   188 n12; Steel Dynamics 148,157,          World Bank 64-65, 86, 92, 133, 134,
   165; technological obsol escence,           176, 193 n8
   plant imbalances 26,3 7-38,45-46,         Woronoff, J. 64, 133
   49-52, 127
US Steel: 1,2, 16,31-32,37, 55, 91,          Yamawaki, H . 61, 62, 68, 74
   94, 129-133, 189 n12; Geneva              Yonekura,S.40,69, 71


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