SINGING THE SHUTDOWN BLUES U.S. industry undergoes a wrenching change, but it could be for the good

By Barbara Rudolph.

Like athletes priming for the all-important championship elimination game, the United Steelworkers of America were girding themselves last week for a major performance. The 650,000-member union has declared June 21 Save American Industry and Jobs Day, and it hopes to turn out tens of thousands for major demonstrations. Rallies are scheduled in 100 cities, half of which will be linked by television satellite to the main conclave in Washington. The aim of all the excitement, says Steelworkers Vice President George Becker, is to protest the ''tide of imported goods that has threatened numerous American industries.'' Meanwhile, in Pittsburgh last week, steelworkers' representatives sat down for contract talks at U.S. Steel, the country's largest producer. The labor contract for 25,000 U.S. Steel employees expires at the end of July, and a strike is looming. Management has stated that it seeks a wage settlement ''competitive'' with the rest of the industry, which has gone through a massive economic shake-out. Union Negotiator James McGeehan, who is seeking wage increases of about 4% and lifelong job security, replies, ''We also need a competitive agreement. Our members cannot take their jobs and run.'' Too many, however, have had little choice. In 1983, on the eve of the last negotiations at U.S. Steel, there were more than 1 million American steelworkers. Today there are fewer than 700,000, and employment is projected to fall about 15% further by 1995. The anxieties and woes of the steel industry's shrinking labor force, and the debate surrounding that predicament, seem all too symptomatic of the troubles and uncertainties that are engulfing much of U.S. manufacturing these days. The hard fact is that the nation is coping with one of the most wrenching economic transitions since the turn of the century. Despite the Reagan Administration's upbeat talk of continuing economic growth and prosperity, workers in traditional American industries insist on singing the shutdown blues, sometimes in whole choirs. Four years after the official end of the last U.S. recession, American factories ranging from textile plants in North Carolina to machine-tool plants in Ohio are still closing their doors. In many cases, older installations have been replaced by hundreds of smaller, more competitive plants, but the powerful images of smokeless smokestacks and dying industrial towns haunt many corners of the American landscape. Amid that painful change, the number of U.S. blue-collar jobs has dramatically declined, just as employment in the newer and often lower-paying service sector has soared. The trend will continue. The U.S. Department of Labor has projected that between 1984 and 1995 the economy will add 16 million new jobs. Almost 90% of them will be in services, even though in that sector there are growing signs of new overseas competition (see box). Those American blue-collar workers who hold on to their jobs, however, will continue to be among the world's wealthiest, with average manufacturing compensation of $12.97 an hour, vs. $1.45 in Taiwan and $1.28 in Brazil. To many labor leaders, industrial scholars and worried politicians, the blue-collar decline is part of a dangerous challenge to U.S. welfare and security. They call the process deindustrialization, and argue that while the U.S. devours huge amounts of foreign industrial goods, the American economy risks losing the very industries that have kept it strong for decades. Says John Young, chief executive of Hewlett-Packard and former head of President Reagan's Commission on Industrial Competitiveness: ''Manufacturing is the foundation upon which a service economy is built.'' Fears of deindustrialization are a major force behind protectionist sentiments in Congress, which are rising in a new crescendo. In the past year more than 200 restrictive trade measures have appeared in the congressional hopper, aimed at sheltering a wide variety of American industries from foreign competition. Says Sidney Jones, an economist with the Brookings Institution in Washington: ''The whole trade situation right now is a 1986 election issue.'' Paradoxically, while nearly 2 million U.S. manufacturing jobs have disappeared since 1979, U.S. industrial output has not declined at all. Overall, the volume of manufacturing output has increased by 23% since 1982, and manufacturing still contributes roughly the same share of gross national product (around 22%) it has for the past 30 years. To critics, however, these seemingly encouraging figures conceal a worrisome ''hollowing out'' of U.S. manufacturing companies. As they see it, many American firms, while contributing their share to the GNP, have become reassembly plants for foreign parts and products. Nowhere is hollowing out more controversial than in the auto industry. Today some 15% of the parts in U.S.-built cars, ranging from engines to transmissions, are made abroad, and a United Auto Workers' study projects that the percentage will rise to 28% by 1995. Robert Reich, a political economist at Harvard and author of The Next American Frontier, is an outspoken critic of this development. Says he: ''If American workers get stuck assembling and distributing sophisticated gadgetry from Japan and elsewhere, they are not building world-class skills.'' The ultimate price for industrial obsolescence is now being paid in Homestead, Pa. (pop. 4,500). In 1892, on the banks of the Monongahela River, striking steelworkers fought Pinkerton detectives who had been hired by Carnegie Steel to squelch their protest. Ten workers died in the battle. In its heyday, Homestead's sprawling 400-acre U.S. Steel plant employed some 14,000 workers. Last month the Homestead mill was placed on ''temporary suspension,'' meaning shutdown. There is 52% unemployment in the Monongahela Valley; the local suicide rate is skyrocketing. Says Veteran Steelworker John Melechenko, 67: ''There's an old saying, When there ain't no smoke, there ain't no work. Now there ain't any smoke and there won't be any.'' Deindustrialization critics argue that some of the hardship could easily be prevented through enlightened protectionism. Barry Bluestone, an economics professor at Boston College and co-author of The Deindustrialization of America, argues for ''vanishing'' protective tariffs to rebuild the competitiveness of U.S. manufacturing. The tariffs would remain in effect only for a fixed period, perhaps five years, while a struggling industry regrouped. Bluestone also advocates a kind of supportive national planning to identify key industries that deserve help in recovery, in the same way that Washington helped Chrysler. However Bluestone and his allies are merely attempting to shore up an illusion, in the view of many other scholars and industrial experts. They argue that the American industrial base is not only surviving but is successfully cresting the challenge of change. In their view, the fear of deindustrialization is misleading. What is instead happening, they contend, is a shift from large and heavily unionized concerns to smaller, more productive enterprises in which labor plays a lesser role. Says Robert Parker, associate director of the U.S. Commerce Department's Bureau of Economic Analysis: ''We have always had winners and losers. What's new is that the winners and losers are different.'' David Lewin, professor of labor and industrial relations at Columbia University, says ''the proportion of the economy represented by monopolies or highly concentrated industries has declined substantially.'' In the case of steel, for example, plant shutdowns have occurred not only because of foreign competition but also because aluminum, plastic and other materials--not necessarily foreign imports--have substituted for the product. Says Lewin: ''Sinister, unfair trade practices haven't taken away from our economy the ability to shift labor and resources to the most promising areas of growth. That's what really counts.'' The symptoms of American industrial reinvigoration are often harder to spot than the signs of decay. David Birch, director of the Massachusetts Institute of Technology's program on neighborhood and regional change, claims that ''thousands of small, innovative companies are springing up in so-called sunset industries.'' In Detroit, for example, he points out that hundreds of small machine-tool companies are appearing even as the old, sclerotic firms that formerly supplied the auto industry disappear. In the steel business, Robert Crandall, a senior fellow at the Brookings Institution, predicts that by the end of the century, small, efficient U.S. operations known as minimills will account for fully 40% of all American steel production, which will be in the neighborhood of 80 million tons a year. Some experts compare America's current industrial throes to the watershed of U.S. agriculture in the late 19th century. According to Columbia's Lewin, the public at that time feared the precipitous decline of agricultural employment much as it now fears the fate of American manufacturing. The point is, he says, that ''American agriculture did not disappear. In fact, agriculture is the most productive sector of the U.S. economy today.'' It was that rural-productivity increase that freed workers to join the burgeoning turn-of-the-century industrial sector. Similarly, Lewin concludes, U.S. manufacturing today is largely freeing workers to pursue other employment. The very dynamism of the American industrial transition, several economists argue, has left fewer and smaller pockets of poverty than one might otherwise suspect. One example is the textile state of North Carolina. Between 1979 and the first three months of this year, North Carolina lost about 25,000 jobs when more than 100 textile and apparel plants closed down. Even so, the state's unemployment rate is 5.8%, significantly lower than the national average of 7.3%. The reason: North Carolina has been able to attract newer and more profitable manufacturing plants in place of its lost ones. Almost two years ago, for example, Honda opened up a $13 million plant in Swepsonville to build lawn mowers. The worst answer to America's economic transition, deindustrialization critics agree, is wholesale protectionism. The U.S. manufacturing economy is more, not less, intertwined with that of other industrial nations today, and an open trade war would soon become a major international economic disaster. Moreover, protectionism would inhibit the very dynamism that proponents of the deindustrialization theory claim they want to protect. The U.S., says Economist Sidney Jones, would be ''putting at risk those areas where we have a comparative advantage to defend areas where we do not.'' For all the concern about flagging American manufacturing prowess, the U.S. * is still a major exporter of such capital goods as oil-field and farm machinery, aircraft equipment and electrical instruments. The market for such goods lies in advanced Third World nations like Brazil and Mexico, which are also often considered to be U.S. manufacturing competitors. Such countries desperately need continued access to the American market, both to buy American and other Western goods and to repay their enormous foreign debts. Free trade and continued prosperity, in other words, remain linked. The pros and cons of the deindustrialization debate, however, are likely to echo more loudly as the Steelworkers' Save American Industry and Jobs Day approaches. And when the speeches of the occasion are over and the protest banners have been taken down, the painful process of change will undoubtedly still continue.

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With reporting by Gisela Bolte/Washington and Frank S. Washington/Atlanta, with other bureaus