In late 2006, Ron Bloom, President Obama's senior counselor for manufacturing policy, was a special staff assistant to the president of the United Steelworkers union. In the "Democratic Left" newsletter dated Fall 2006, Bloom authored an article entitled, "If I Ran the Zoo: A Win-Win Solution for the Steel Industry." In it, he presents his views on unions, management, American manufacturing, the trade deficit and some of what is required for industrial success. Here is a shortened version of that article.

[Steel]workers have spent far too much time in the last 20 years sharing the pain, but we recognize that to share the gain, there needs to be gain to share.

The Steelworkers have some advice for industry execs on how to make sure there's plenty for both shareholders and workers. The theme of this advice will be really quite simple—be hardheaded and pragmatic capitalists—run the companies and actively participate in the political process on the basis of what is good for your shareholders, and not based on outmoded nostrums about unions, free enterprise, deregulation, free markets and free trade.

In today's world, the blather about free trade, free markets and the joy of competition is nothing but pablum for the suckers. The guys making real money know that outsized returns are available to those who find the industries that get the system to work for them and the companies within those industries that dominate them.

Does anyone seriously think that the free-marketeers at Goldman Sachs have such staggering returns on equity because all they know is what everyone else knows? Did Bill Gates accumulate a net worth larger than the entire bottom third of our nation because he kept the playing field level? In the real world, he who makes the rules of the game rules the game.

The starting point is that companies need to get along with the union. Companies that establish a constructive partnership with their unions do far better for their shareholders than those that do not.

In the spring of 2003, US Steel was trading at just over $15 per share. The company made a deal with the union that facilitated its purchase of National Steel, and within 18 months the shareholders saw their investment triple, adding over $3 billion to the value of the company. In January of 2004, the union made a deal with Allegheny Technologies that allowed them to take the assets of J&L Stainless off Arcelor's hands. At the time of the deal, ATI's equity was valued at $900 million. Today it sits at $6.5 billion.

Now, certainly little things like China and the commodities boom have at least something to do with this, but even after the recent run-up, the cooperation in restructuring and recapitalization at Stelco caused investments to quadruple in a matter of days.

Compare that to companies that have chosen the other path. In the month before the Steelworkers' fight with Oregon Steel began, the stock traded at $22 per share. At one point during the fight, the stock fell to as low as a dollar, and at the time of the settlement was hovering around $5.

While there is plenty of room for disagreement among management, shareholders and labor, the real truth is that today, labor is the least of the industry's problems. The U.S. and Canada have the most productive and efficient steel industries in the world, and given their high productivity, the reasonably decent wages that workers are paid are seldom decisive in determining a company's level of profitability. Measured against an alienated group with a little lower wage package, an engaged, well-paid workforce more than pays for itself.

The real impediments to long-term profitability lie largely outside the collective bargaining arena.

[Bloom explains that two of those impediments are the high costs of healthcare and energy. Then he describes two others: the shift of production offshore and the trade deficit.]

Almost 80 percent of steel consumption is accounted for by products that can be made anywhere. And if those who consume steel are not located here, it will be much harder to sell them steel that is made here. The American steel industry today is globally competitive, but it generally does not have costs low enough to rely on exports for its survival.

As America's largest consumers of steel—the manufacturers of autos, auto parts, household appliances and other steel-intensive products—increasingly move their manufacturing facilities elsewhere, the logic for a large domestic steel industry will go, along with those consumers. There is little that is manufactured that does not somewhere along the line directly or indirectly require steel. But this means that the less we make here the less we need a steel industry here to feed it.

The steel industry, in its own self-interest, needs to broadly engage in the fight to save the overall manufacturing sector. Every other nation in the world has a specific and targeted strategy to preserve or expand its manufacturing base. We, on the other hand, seem to think that empty platitudes will suffice. I guess that you could imagine a North American steel industry whose costs permitted it to make steel here and sell it to those who consume it in other places, but those economics seem pretty hard to put together.

To convey the dangers of a trade deficit left unreined, let me quote two well-known radicals. The first one said the following:

“I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade. I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change. Altogether the circumstances seem to me as dangerous and intractable as any I can remember. What really concerns me is that there seems to be so little willingness or capacity to do much about it.”

And the second:
“A country that is now aspiring to an ‘Ownership Society’
will not find happiness in—and I'll use hyperbole here for emphasis—a ‘Sharecropper's Society.’ But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us.”

The first radical that I quoted was Paul Volker, the second, Warren Buffet. And if you don't believe them, let's look at where the most cold-blooded and unemotional capitalists of all—currency traders—are putting their money. While it may be true that they read the editorial page of the Wall Street Journal, cluck endlessly at cocktail parties about Eurosclerosis and make contributions to the CATO Institute, during the day they go short the dollar and long the Euro. In the last three and a half years, the Euro is up 40 percent versus the dollar, meaning those whose livelihood depends on an honest assessment of our economy have voted with their feet.

No one seriously believes that the U.S.'s current profligacy will end other than badly, but neither the steel industry nor any other sector of the business community appears willing to stand up and say that the emperor has no clothes. Each year we are selling almost a trillion dollars of our seed corn mortgaging our future so that we can dance the night away while our poor go hungry and our roads and bridges crumble. The growth of China and India can be a great opportunity, but not if we, as Lenin so aptly put it, sell them the rope with which to hang us.

Steel industry managers need to repudiate the race-to-the-bottom model of globalization. We need world trade that brings the bottom up, not the top down, and we need to tell the American government to do what every one of its trading partners does—stand up for those who operate on their soil. iBi

Reprinted with permission. Originally published in the September 30, 2009 issue of Manufacturing & Technology News. Visit manufacturingnews.com for more information.