The Multinational Monitor



A Political History of Steel

by Tim Shorrock

The postwar Japanese steel industry has its roots in the heavy industrialization that occurred in Japan during the 1930s and World War II. The technical development and capital accumulation in this period laid the basis for the rapid economic growth of the 1950s, 1960s, and 1970s.

In the initial period of democratization after the war, the U.S. occupation authorities attempted to break up the structural base of Japanese imperialism by dissolving the zaibatsu, the large family -led combines-such as Mitsui, Mitsubishi, and Sumitomo-that dominated the economy, and allowing unions to organize. But by 1947, this policy had changed, and Japan came to be regarded as the lynchpin in the struggle against communism in Asia, that was to be built up as a strong capitalist nation.

In 1948, an American banker was brought in to impose a strict austerity budget on the country, and the occupation and Japanese government began to turn on the left and the very powerful unions that had formed since 1945. A strict rationalization program (a cost -saving, modernization plan) was instituted, and thousand of workers were fired leading to prolonged strikes in the auto, steel, electric machinery, and coal industries. The pre-war zaibatsu were allowed to regroup, this time around banks rather than family holding companies.

Japanese industry remained in a slump, however, until the outbreak of the Korean War in June 1950, when close to a billion dollars of U.S. war procurements began pouring into the economy. This money allowed key industries like steel to double their capacity, buy foreign technology, and further increase their productivity.

In 1949 and 1950, a team of American engineers from U.S. and Bethlehem Steel Companies arrived in Japan and offered technical guidance to the industry in steelmaking, heat control, and operating techniques for open-hearth and reheating furnaces. A team of Japanese engineers also toured the U.S. to learn the latest in American techniques. In 1955, the Japan Productivity Center was established to assist Japanese firms in utilizing American management theory.

From 1960 on, the steel industry went through a rapid period of modernization. Large, integrated steelworks on reclaimed land were constructed along the coast, and the country became the possessor of the newest and most powerful group of plants in the world.

A major factor in this development was the destruction of the steelworkers union. Although the leftist leadership of the union had been broken during the Korean War, the organization still functioned as a union demanding higher wages and frequently going on strike. But as the industry turned towards computerized controls, the layer of skilled workers was wiped out, and along with them, any power workers had within the mills.

According to the Japanese writer and commentator Muto Ichiyo, the "deskilling of the work force" was a deliberate strategy. "It started with the separation of what we call line and staff," he says. "Formerly, steelmaking was a very complex process requiring great expertise of workers. The foreman, a skilled worker, had control on the workshop floor, served as the shop steward, and carried great prestige among the workers. That collective of workers had a great say in production."

But when the large-scale, centrally -controlled and standardized mills were built in the 1960s, says Muto, "a whole bunch of new workers came in. They were high-school graduates. And the old type artisanship became useless. The unions didn't realize that this was not merely technological innovation but also a step fatal to worker collectivism. In ten years, the unions actually ceased to function. The steel workers union, which was active and even militant-militant to the degree that they stopped the operation of blast furnaces several times-by 1962 or 63, found itself totally part of the management system." The Japan Steelworkers Confederation remains one of the most conservative in Japan, and functions as "part and parcel of management," according to Muto.

The importance of this factor was emphasized by Japan Steel Federation Chairman Eishiro Saito in a recent interview with a Japanese government publication. "It cannot be denied," oaid Saito, ''that the basic posture of the union on rationalization and modernization significantly affects the company's productivity and ultimately the company's viability in the international market."

But labor collaboration was only one aspect of the success of Japan's steel in dustry. Three other factors are equally important:

  • *technical developments. Japan's primary disadvantage, its lack of raw materials, was overcome through the building of huge vessels designed to carry large amounts of ore for low cost, building deep harbors and steel mills on the coast, and utilizing the most advanced technology. For example, 86 percent of Japanese steel is continuously cast-a process that saves energy and raises productivity-compared to only 26 percent in tile U.S.
  • a wave of mergers that culminated with the 1970 merger of Yawata and Fuji Steel into Nippon Steel, the largest steel company in the world.
  • the pursuit of export markets which account for 30 percent of Japan's total output of steel.

These factors have given Japanese steel a $100 a ton edge over the U.S. Japan's advantages have not come without social costs; the environmental damage caused by the construction of heavy industry along the coastline has been immense. But the savings that the steel industry has been able to pass on to other industries-automobiles in particular-has been a major factor in Japan's successful penetration of foreign markets.

The Japanese steel companies depend on their close relationships to Japanese banks for most of their capital needs; three banks own 60 percent of Nippon Steel, for example, which had a $1.8 billion debt in 1971. But foreign loans have also played an important part in the industry and have financed plant expansion over and above that possible with domestic funds (see chart).

The five leading steel companies in Japan are: Nippon Steel, which in 1970, produced one-third of Japan's crude steel and accounted for 38 percent of the country's total export tonnage; Kawasaki Steel, part of the Dai-Ichi Kangyo Bank Group, one of the six big industrial groups in the country; Nippon Kokkan (NKK), Japan's only integrated steelmaker, engineering, construction and shipbuilding company; Sumitomo Metals, Japan's third largest borrower of foreign funds and a provider of technical help to U.S. Steel Corporation; and Kobe Steel, which specializes in building whole plants overseas.

In addition to their extensive exports, Japanese steel companies are heavily involved in steel projects throughout the world. The largest overseas project is Nippon Steel's $2 billion investment in the Paoshan Steel complex near Shanghai, China, for which the company is supplying plant design, technology and operation guidance. Kawasaki has joined steel companies from Italy in a three-way project in Brazil. In the 1970s, NKK, Nippon Steel, and Mitsui Corporation collaborated with funds and technology in the construction of the Pohang Steel Works in South Korea.

Some of these investments have come back to haunt the companies. In April, Nippon Steel announced it would not meet South Korea's request for technical cooperation in building a second large-scale integrated steel mill. The reason: Korean exports are beginning to cut into Japanese markets, especially in Southeast Asia. Nippon Steel, it seems, has no desire to further expand its competitors' facilities. Japanese steel companies have also called for import restrictions on steel from Korea and Taiwan.

In recent years, Japanese steel companies have become the primary technical advisor to the U.S. industry. According to the Japanese Steel Federation, since 1978 Japanese companies have assisted U.S. companies in continuous casting processes, the treating of cold-rolled sheet metal, and the manufacture of tubes and pipes. And with American banks refusing to loan money to the industry, American companies are also seeking Japanese financial help.

Recent deals signed include a contract by Nippon Steel to buy Special Metals Corporation, a super alloy maker owned by the conglomerate Allegheny Industries (AI), which is also selling Tube Turns, Inc., a welded steel joint maker, to Sumitomo Metal Industries. In March, Kobe Steel signed a contract to undertake the rolling of titanium ingots on consignment for RMI Corporation, which is equally owned by U.S. Steel and National Steel Corporations (titanium products are used in nuclear power plants, space vehicles, and aircraft.)

The possibilities of large investments in the U.S. by Japanese steel companies seems unlikely, however-unless the industry succeeds in breaking the unions. In May, negotiations between the Ford Motor Company and NKK broke down over NKK's proposed purchase of 75 percent of the auto company's River Rouge Steel Co. According to the Japan Economic Journal, the United Auto Workers raised objections to NKK's desire to revise the labor agreement at the plant, which ranged from wages and pensions to the working system. The deal, commented the paper, "was expected to usher in a new era of cooperation between Japan's and U.S. steel industry. ..This failure thus is likely to have repercussions on not only other Japanese steelmakers, but all Japanese enterprises now planning to launch production in the U.S."

Despite all the outward features of success, the Japanese steel industry is still suffering the impact of the global recession. Because of the drop in demand for ships and other products, profits at the major companies have been down, and capital spending is dropping. In March, Nippon Steel stopped operation at seven facilities, and according to a recent report in the Financial Times, all five manufacturers are "reducing directors pay, transferring workers to other divisions or other companies and are making workers redundant."

U.S. Bank Lending to Top six Japanese Steel Companies

U.S. $millions
Bank 1975 1977 1979
Citibank 55.6 219.3  --
Bank of America 21.2 142.4 315
Chase Manhattan 55.9 204.2 390
Morgan Guarantee Trust 12.5 124.2 350
Manufacturers Hanover 23.6 40.6 115
Continental Illinois  -- 33.6 90
Chemical Bank 11.6 82.4  --
Bankers Trust 28.7 50.9  --
United California Bank 3.3 19.6 30
First National Bank of Chicago 5.9 7.7 35
Wells Fargo Bank 5.9 46.2 75
Others 54.8 62.4 15
TOTAL 279.0 1033.5 1415

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