After I posted about the recent developments in steel economics research and the mills that closed, I did some digging to find out what happened after the legacy steel companies quit.  (Mostly there's some cheap real estate to be had.)  I also turned up this December 1981 essay by Staughton Lynd, explaining why, in the depths of the shakeout of the steel industry, United States Steel was spending money buying Marathon Oil.
Steel is a very capital-intensive business, and, for this reason, investment in steel is not as profitable as investment in downtown real estate, or chemicals, or, apparently, oil. Therefore, American steel companies have been reducing their steelmaking capacity and investing elsewhere. For American society, which needs a steel industry to retain its economic independence, this raises the question of whether the profit motive can be relied on to reindustrialize steel.
The profit motive can be relied upon.  Mr Lynd, in common with many observers of the time, was looking for the investment in the wrong places.
Today, it is generally recognized that the American steel industry is sick because it has failed to modernize. Imported steel is a symptom - not the disease. The competition of European steel companies may be ''unfair,'' in the sense that there are heavy government subsidies, but this is not true of Japan. Japanese steelmakers can undersell American steelmakers in the American market because they have installed modern equipment that dramatically reduces the cost of making a ton of steel.
That was the received wisdom, back in the day, but all of that scrap metal in the form of abandoned factories and redundant railroads was a feedstock, provided someone could figure out how to get good product out of it.  (That every third world country was exporting steel, and a lot of that steel was Distressed Material, simply contributed more feedstock.)
Every mill closed in Youngstown made steel in antiquated open hearths. An open-hearth furnace takes hours to make a ''heat,'' or batch of steel, that a basic oxygen-process shop, which is standard in Japan, can make in 45 minutes. And not one of the mills closed in Youngstown had a continuous caster to semi-finish the raw steel as it came from the furnace.
Yes, and every mill closed in Youngstown had an annual capacity of two to three million tons of raw steel, located far from a deepwater port, subjecting them to the double disadvantage of unexploited scale economies and high inbound transportation costs.  There was another shakeout in progress, the abandonment of inefficiently small basic oxygen shops.
The most intriguing implication of this research is that the "lethargic" steel producers who postponed the replacement of their open-hearth furnaces or only recently replaced them with large electric furnaces made an optimal choice. Early adoption of a (too small) basic oxygen converter may have been a mistake.
I still revisit those research notes from time to time. But building a model open hearth shop with working smokestacks strikes me as more fun.  But Mr Lynd didn't see the revolution coming.
It remains to be seen whether tax breaks and other subsidies, granted on condition that the money provided be reinvested in steel, would induce U.S. Steel and other steel companies to rebuild aging mills in places like Pittsburgh, Gary, Ind., and Lackawanna, N.Y. If not, the people of the United States will have to consider doing the job themselves. In the 1930's, the Governmen created the Tennessee Valley Authority to provide electric power to areas that private utilities could not profitably serve. A Pittsburgh steelworker has suggested formation of a ''Monongahela Valley Authority'' that could use the power of eminent domain to acquire and operate steel mills that the industry did not wish to modernize.
As I asked a few years ago, "Anybody seen Bethlehem Steel lately?"  Raw steel production in North America is as cost-efficient as anyone's, and the modernization came from outside.  That authority would have kept in place precisely the inefficient capacity that has been wrung out, and it likely would have precluded a lot of the creativity that makes recycling scrap into automotive-grade sheet and heavy structural shapes standard practice.

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