The decline of the United States steel industry : A study of market entropy
Ciscel, David H.
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The American steel industry is a declining industry due to fundamental changes taking place in its environment. The industry will be unable to adapt to this new environment under its present goal structure. In recent years, steel firms have increased prices several times but profits and sales continue to fall. The decline of the American steel industry concerns the collapse of a market: a market once considered central to an industrial economy. The puroose of the study is to illustrate that under present market conditions the United States steel industry is declining or stagnating. Growth and stability are unlikely prospects for this industry. The objective is to show that to maintain the private and public goals of the industry, great changes will have to be made in the means used to obtain these goals. The scope of the study is to view the steel industry in its national and international context since the Second World War. During this period the matrix of the world steel organization has changed dramatically. The study is not strictly within the confines of the microeconomics of the firm, Instead, the analysis is made at a middle level of aggregation, treating the industry as a unit and its behavior as uniform. The study largely ignores the plight of any individual firm, focusing instead upon the impact of the changing demand for steel, domestically and internationally, on the entire industry. The methodology involves developing a behavioral model of the steel industry. The model is a semi-open system allowing for the interchange of the system with its external environment. The empirical part of the study centers on three aspects of the market for steel: (1) the characteristics of consumption, (2) world production levels, and (3) the availability of raw materials. Consumption: There are changes in consumption worth noting. It is important to note that the composition of demand for steel from steel using industries has not grown as rapidly as has the growth of demand in the user industries. The steel industry was found to be growing at a slower rate than the economy over the 1947-1963 period. Steel, as a resource in investment and durable goods, declined over the 1947-1963 period, Many of the industries steel has traditionally supplied had sluggish growth rates. Only a few of steel's buyers performed as well as the economy. Within its market steel performed less well than its buyers. The value of steel supplied to its users declined relative to the value of the production of its users. In a few cases the value of steel used fell absolutely as the value of the production of the buyer expanded. Between 1947 and 1963, every new dollar of demand in the economy had an increasingly smaller impact on the steel industry. This trend is demonstrated through a comparative analysis of the United States Department of Commerce input-output studies for 1947, 1958, and 1963. Production: While the technology of producing steel has had two major changes in recent years-the basic oxygen converter and the continuous casting process-and many minor changes, this is not the variable of primary interest. Of real importance has been the proliferation of information concerning the methodology of steel production to the various nations of the world. Growth of international capacity and production has automatically eliminated the United States industry from its post-war role as the dominant organism for the service of world steel needs. Changes in international production are shown for the post-war period on a country to country basis. The pattern of production has changed. The steel industry is going through an international product cycle as described and developed by Raymond Vernon and Charles Kindleberger. During this century steel has changed from a high-risk, quality differentiated product in need of a large market, to a low-risk standardized product with a world market that anyone can attempt to enter. The shift in production and the process of the product cycle are illustrated through an analysis of steel consumption and steel production in the steel producing nations of the world. The changes in the United States steel import-export situation are examined as a function of the shift in international steel production and of the changes in the nature of the product. Raw Materials: Input factors such as iron ore, coal, and oxygen have been until recent periods available in large quantities in the United States, In recent years many of our great ore fields have decreased in quality. In some measure this has depleted the industry's supply advantage. To measure this, domestic production, imports, and exports of iron ore are examined, A finding of the study was that since 1950 there has been a dramatic shift from the use of domestic ore to the use of imported ores. The growth of Canada, South America, and Africa as resource sites has increased the uncertainty of stable resource supplies. In conclusion, the results of the investigation revealed that the three factors listed above have caused a basic change in the framework within which the industry must operate. This study challenges the assumptions of recent studies by Walter Adams and Joel B, Dirlam that attribute the decline of the industry either to technological backwardness or to the industry's oligopolistic market structure. Instead, this study demonstrated that the problems of the industry can be attributed to basic structural changes that conflict with historical behavior patterns.