My knowledge of the contemporary steel industry is a little rusty, but it’s better than you might think. About a decade ago, my poorly-read dissertation was enough to get me invited on as a consultant to two NEH seminars conducted at the Western Reserve Historical Society in Cleveland, OH. Those gigs included tours of the huge Mittal plant there, where we discussed the difference between how steel is made now and how it was made back in the day.
The big difference is that nobody manufactures steel at all anymore in America. The price of scrap steel is so cheap (and his been so for decades now) that just about every blast furnace in America* has been taken down and replaced with electric arc furnaces that melt old steel so that it can be recycled into new products. Just last week, I got a chance to tour the arc furnace building here at Evraz in Pueblo for the first time. They have “recipes” which they use to turn various kinds of scrap into first-rate finished products. I don’t think anybody bothers to call plants like this one “minimills” anymore. In reality, they are old plants (the one in Pueblo dates from 1906) that have been retrofitted for new market realities.
All this serves as background for my reading of the primal scream of an interview that Clayton Christensen just gave Business Week in response to the Jill Lepore takedown of disruptive innovation in the New Yorker. Here’s the part about the steel industry:
[Disruptive innovation] is not a theory about survivability. I’d ask [Lepore] to go see an integrated steel company operated by U.S. Steel. Seriously. And come back with data on, does U.S. Steel make rebar anymore? No, they’ve been taken out of rebar. Do the integrated steel companies like U.S. Steel make rail for the railroads? No. Do they make rod and angle iron, Jill? No. Do they make structural steel I-beams and H-beams that you use to make the massive skyscrapers downtown, does U.S. Steel make those beams? Come on, Jill, tell me! No!
So what do they make? Steel sheet at the high end of the market. The fact is that they make steel sheet at the high end of the market, but have been driven out everywhere else. This is a process, not an event.
For all I know, Christensen may be right about what U.S. Steel makes (although there must be a hell of a market for high-end sheet steel if they can dominate the entire steel industry from that niche). I can, however, tell you this: Evraz makes rail, and apparently they’re the market leader. And they do this from a plant that looks like Hell from the outside, but is obviously incredibly high-tech from within. In other words, this particular facility (under a different owners) caught up in its battle against the slash-and-burn “innovators” of the steel industry. And they’re still a union shop!!!
But you don’t even have to innovate in order to keep up. I heard a story in Cleveland that still haunts my dreams. Apparently, there was once a rolling mill there that the owners sold to a Chinese firm. That Chinese firm took that mill, disassembled it piece by piece, reassembled it in China and starting making steel there again. They couldn’t make money from it in America because of labor costs and environmental regulations, but the old technology still worked fine in China. What’s standing at that site now? A Walmart, of course.
Unlike Lepore, who did the research across industries and got it fact-checked, I’m not saying that Christensen is full of it. What I am saying is that the situation in the steel industry is clearly much more complicated than he has suggested. Unfortunately, complicated stories don’t sell books to businessmen. Complicated stories don’t get you expensive speaking gigs. Complicated stories don’t make you the darling of Silicon Valley. Simple ones do.
“What goes up, must come down,” is probably too simple to explain what’s happening to Christensen at this moment, but it’s the best I can do at the moment so I’m sticking to it. If anybody out there would like to revise my revisionism, please be my guest. After all, that’s how scholarship is supposed to work.
* Nobody was sure whether U.S. Steel still made its own steel in Gary, IN anymore. That’s a harder question to answer than you might think. Mittal maintained the capacity to make its own new steel, but when I was there they told me that they almost never used it.