Back to Basics

Trade Unions and the Steel Industry

J R Sullivan

In order to understand the nature of developments which have occurred in the Australian steel industry in recent years and the significance of those developments and anticipated future developments for relationships between the industry and trade unions, it is necessary to make some reference to the international scene and to the place in it of the Australian steel industry.

In 1974 world steel production reached a peak of 704m tonnes, but it was in that year that the world commenced to slip into a severe recession. When that recession bottomed in 1982, world steel production had fallen by 8 per cent to 645m tonnes. However, whilst consumption of steel was shrinking during those years, production capacities continued to grow.

This apparent contradiction was brought about by a combination of factors, including:

• the length of time required to construct and commission previously planned capacity;
• over-optimistic expectations regarding future rates of steel consumption;
• the determination of developing countries to expand their steel industries as a basis for industrial and economic growth; and
• the determination of governments of some industrialised countries to avoid contraction of their industries through provision of massive subsidies.

As a result, when economic recovery commenced to emerge in 1983, it did so in the context of estimated annual excess raw steel capacity of some 200m metric tonnes---an environment which continues today with current excess capacity estimated at 120m tonnes per annum.

The problems associated with this legacy of excess capacity continue to be aggravated by developing countries pressing ahead with construction of additional plant with capacity and output substantially in excess of what their domestic markets can absorb. As that capacity grows, there are intensified efforts to export the excess products to industrialised countries, which are already in strong competition with each other and are continuing with programs of closure of equipment which is often quite modern.

It is estimated by the International Iron and Steel Institute that for developing countries capacity in 1990 will exceed that of 1985 by 24m tonnes or 28 per cent, but that during the same period capacity in Western Europe, North America and Japan will reduce by 69m tonnes or 15 per cent. In addition to the difficulties flowing from the persistence of excess world production capacity, competing materials have been invading some traditional steel markets. The extent of this is such that it is widely accepted that in the industrialised countries this form of competition, combined with other factors such as use of lighter, stronger, and corrosion-resistant steels, requires average GNP growth of 3 per cent as a precondition for any increase in steel tonnage consumed. In the context of generally low levels of economic growth, this has meant stagnating world demand for steel.

Another important development increasing the difficulties of established producers has been the rise of domestic mini mills based on steel scrap feed and electric furnace practice, sited close to raw material supplies and markets and offering low capital entry and labour costs and high productivity. The magnitude of difficulties experienced by the steel industries of industrialised nations as a result of these developments is reflected in employment and production statistics.

During the last five years some 50m tonnes or one-third of US capacity has been scrapped. Whereas in 1980 the US steel industry employed 400,000 people, and the industry produced 112m tonnes of raw steel, In 1988 the industry is expected to employ about 155,000 people (down 60 per cent) and produce 81m tonnes (down 28 per cent). Incidentally, these statistics imply an almost doubling of productivity from 280 to 523 tonnes of raw steel per employee year.

Since 1980 the EC countries have scrapped 40m tonnes or 20 per cent of capacity and employment numbers have been reduced by 40 per cent from 670,000 to 397,000. The European Commission estimates that capacity will need to be cut back by a further 30m tonnes, and the German steel industry has announced plans to reduce employment numbers by 35,000 in 1990.

It is sometimes overlooked that the Japanese steel industry has faced similar problems. In 1973 Japan produced 120m tonnes of raw steel. By 1975 the annual total had fallen to 102m tonnes, and bottomed in 1982 at 96m tonnes---a 20 per cent reduction on the 1973 level. In the more favourable world economic climate of 1984, production rose to 106m tonnes. However, the high yen value, which has prevailed since the Japanese autumn of 1985, has brought additional severe repercussions for the Japanese steel industry through falling domestic steel demand from export-oriented industries, sluggish steel exports and increased steel imports.

Wages in the Japanese steel industry increased by a total of only 8 per cent in the five years 1982-86, a statistic which, incidentally, may be compared with something like 40 per cent for the Australian steel industry over about the same period. However, because of the appreciating yen in US dollar terms, the 8 per cent yen increase translated to 82 per cent on a US dollar basis, on which reckoning Japanese payroll costs approached those of the United States. In newly developed steel producing countries, such as Korea, the change in exchange rate between local currency and the US dollar has been much less, and against these countries Japan has rapidly lost cost competitiveness. Current in the Japanese steel industry is a forecast of a world production of 739m tonnes in 1990, marginally above 1974, and Japanese production of between 85 and 90m tonnes, 10 per cent below 1987 (98m tonnes) and 25 per cent below 1973.

Against this background, the five major Japanese steel companies have recently announced restructuring plans involving in total a 40,000 reduction (27 per cent) in employment in the steel industry. By way of example, Nippon Steel in February 1987 foreshadowed plans to reduce annual capacity by 10m tonnes, or 40 per cent, by the end of fiscal year 1989. This is to involve a 19,000 cut in employment to 27,000. Annual production per employee is planned to increase from the 556 tonnes achieved in 1986 to 889 tonnes in 1990. That involves a 60 per cent labour productivity increase; and from what we know of the effectiveness of management of Nippon Steel, the target is likely to be achieved.

BHP forecasts, which take account of those of the OECD and the International Iron and Steel Institute, are that:

• the international steel market is likely to experience a very small growth trend over the next seven years, averaging about 1 per cent per annum on the basis of a world GDP growth per annum of 3 per cent. However, there will be large variations within the overall world trend, with steel demand in advanced industrialised countries declining, whilst strong demand is anticipated in developing countries in Asia and South Africa;
• sizeable world excess capacity will persist well into the 1990s; and
• the Australian steel market is expected to show little growth over the next seven years and to remain at about the 5m tonnes per annum at which it has recently stabilised. Given BHP's current domestic market share of 81 per cent, it will continue to be necessary to place over one million tonnes, or 20-25 per cent of the company's production, in an intensely competitive export market, and it is in this international market rather than the domestic one that growth opportunities must be sought.

In summary, the world steel industry presents a grim and daunting picture of:

• continuing excess capacity;
• stagnating demand;
• increasing protectionist pressures in the context of a quarter of Western world steelmaking capacity being partly or fully owned by governments;
• invasion by competing materials of traditional steel preserves;
• intense market competition from developing countries; and
• determined efforts by steel industries in all developed countries to survive and prosper by becoming more competitive through improving technology, concentrating on production of superior quality steels, increasing productivity and reliability, shortening delivery times, and reducing costs.

The Australian industry's difficulties commenced in earnest in the second half of 1982 when the increasingly severe deterioration in the international market coincided with a 30 per cent fall in domestic steel consumption. These pressures were reinforced by:

• a build-up of imports which took a greater proportion of a smaller domestic demand;
• a rapid increase in State government taxes and charges at a rate roughly double that of the CPI; and
• incredibly, in the midst of an international recession, an escalation of 28 per cent in labour costs per tonne of steel in the first half of 1982, which was accompanied by a high loss of man hours because of strikes.

The restructuring program since undertaken by the company has been similar in nature to that followed by those steelmakers in other industrialised countries who are equally determined to survive the difficulties facing their industry.

In 1982 the company's production facilities ranged from world class to obsolescent. However, the majority were in the good to excellent end of this range particularly in primary steelmaking at Port Kembla, and at the flat product mills at Westernport.

In the first stage of the restructuring program, much of the older equipment was closed and nominal steelmaking capacity substantially reduced. Between June 1982 and May 1983, the number of employees at Newcastle, Port Kembla and Whyalla steelworks fell by 10,000 to 25,00. Most of this reduction was achieved through encouragement of voluntary early retirement and natural attrition, but there were also compulsory retrenchments.

Those labour restrictions, and continuation of the circumstances which gave rise to them, resulted in the implementation in January 1984 of the Commonwealth Government's steel industry plan.

The plan, which has a life of five years to end in December 1988, had three elements.

There were, firstly, commitments by the company to invest $800m during the life of the plan in a major modernisation program, and not to enforce further reductions in the labour force by compulsory retrenchments.

Secondly, there were commitments by State Governments to exercise restraint in relation to increasing taxes and charges which impact on the industry, and commitments by the Commonwealth Government to provide:

• bounty payments up to $71.6m per annum for the benefit of steel consumers of four categories of flat and tubular steel products;
• a safety mechanism to allow for review of assistance measures if the local industry's share of the domestic market in specified product categories falls below 80 per cent or rises above 90 per cent;
• a 'fast track' mechanism to deal with dumping by overseas producers of steel products in the domestic market; and
• a 'labour adjustment training' arrangement.

Thirdly, there were commitments by unions that:

• they would not seek wages or conditions above those of prevailing community standards;
• they would accept that productivity would in the short term increase from the then existing level of about 179 tonnes per man year to 250 tonnes, and thereafter should increase at a rate higher than the trend rates in national productivity; and
• they would strictly observe commitments to follow dispute-settling procedures previously agreed when hours of work in the industry were reduced to 38 in the first half of 1982.

Since January 1984 the company has honoured its commitments. There have been no enforced retrenchments, and capital investment of $1.6 billion to date has doubled the commitment for the full life of the plan to December 1988.

Generally speaking, State Governments' charges have escalated less rapidly, although in some cases the rate has exceeded the CPI and the Commonwealth Government's assistance measures, although not fully implemented, have been sufficient to provide a basis for the confidence necessary to allow the company to undertake a capital investment program which to date has constituted almost 10 per cent of total private new capital expenditure by Australian manufacturing industry over the period of the plan.

It is only in the matter of some of the unions' commitments that operation of the plan has proven to be seriously flawed.

Although at some centres, particularly Port Kembla, there has been too frequent a resort to strike action in support of claims for increased over-award production bonus payments, the commitment 'not to seek wages or conditions above those of prevailing community standards' has been generally observed.

Nevertheless, the average annual wage increases of more than 6 per cent, which have occurred over the life of the plan and within the constraints of wage-fixing principles, have placed the Australian steel industry at a disadvantage in competing with overseas producers with lower rates of wage increases---an inevitable consequence for manufacturing industries in an economy which persists in maintaining an inflation rate three times that of its major trading competitors.

As to productivity, there has been no disavowal by unions of their commitment to the targets envisaged in the plan; indeed, the short-term aim of 250 tonnes of raw steel per employee year was substantially achieved in 1984. However, since then, there has been negligible growth in productivity. Contributing to this disappointing result have been two principal factors: the anticipated commissioning difficulties associated with a vast capital investment program; and resistance by employees and their unions to change and the industrial unrest associated with that resistance.

Most changes in work practices proposed since 1983, particularly those not associated with radically new technology, have faced opposition from employees and their unions; and too often that opposition has been expressed in strike action, as a consequence of failure to observe agreed dispute-settling procedures or to accept the result from those procedures when seen by employees and/or their unions as unfavourable.

A dispute-settling procedure was introduced into steel industry awards in 1982 and a commitment to promoting observance of the procedure was given to unions as part of the agreement to reduce working hours to 38.

In 1983 it was acknowledged by the unions that the procedure was not working as intended; as part of their contribution to the steel industry plan, it was agreed by the unions that the procedure would be 'strictly adhered to'.

There followed some reduction in strike incidence until 1985, although no greater reduction in trend than enjoyed during that period by manufacturing industry in general. However, in 1986 and 1987, contrary to more general manufacturing industry experience, the trend was sharply reversed to produce the worst strike result for ten years. During the half-year ended May 1987 in which 198,250 tonnes of production were lost because of strikes, productivity fell well below 250 tonnes.

We are entitled to ask why there should be this failure by employees and unions to observe commitments so clearly and deliberately given in return for valuable consideration.

In part, the immediate cause of the 198~87 upsurge in resistance to change and consequently in strikes may have been a perception that the industry was no longer in as precarious a position as in 1982-83. More generally, however, the answer appears to lie in a critical conflict between attitudes accumulated during the development of a mature industry and the imperatives for survival when such an industry finds itself beset by a revolution in technology and in international trade, finance and political and economic development.

Although in one sense the steel industry is an ancient one, in terms of availability of cheap steel in large quantities, it effectively dates from the mid-19th century and the development, then, of the open hearth and Bessemer furnaces.

Until the 1970s, the progress of the industry was generally one of relatively stable technology and continuing growth, occasionally depressed by economic recessions or boosted by world wars. The Australian industry conformed to this pattern; in particular, the period from the end of World War II to the 1970s was one of expansion and increasing employment. The only notable disruption of this pattern was in the early 1960s when the company was among the first in the world to substitute basic oxygen steelmaking technology for the old open hearth process, with a consequential two-thirds reduction in the number of employees required in steelmaking departments. However, as the industry was continuing to expand, adjustment problems were minimised.

As a result, developments since 1982 have involved a severe cultural shock for those employed in the industry and for the communities in which the industry's main production operations are located. As has been the case in other countries, first-round effects of reductions in plant capacity and employment have been followed by massive modernisation programs incorporating new processes and techniques directed to improving profitability by continually:

• improving quality and reliability; reducing costs of energy, materials and labour; and
• developing and producing new and competitive products with high added value.

These developments have involved more than mere reduction in the size of the labour force. They have impacted on the workforce in terms of skills, job mix and age structure. Automation reduces the number of jobs that require heavy physical labour, manual skills or years of experience. It increases the number of judging and controlling jobs which involve monitoring.

As automation extends, particularly in processes which involve use of electronics, data processing and hydropneumatics, changed levels of competence are required from maintenance and service employees who form an increasing proportion of the workforce.

The traditional sharp distinction between maintenance and production work becomes increasingly blurred and the number of overlapping tasks grows. Different skills are required from production workers where processes are subject to programmable control.

Generally, the industry increasingly requires a higher proportion of more highly skilled and adaptable employees. The ability of individual members of the workforce to work with new technology varies with age, motivation, educational background and skills, and consequently with their capacity to undertake appropriate training and retraining successfully.

For employees in the Australian steel industry, the years since 1982 has thus been a period of continuing change; for many employees in most occupations---managers, supervisors, engineers, technicians, maintenance tradesmen and production workers alike---there has been required adjustments on an unprecedented scale, many of them unwelcome to employees and unions. Among the consequences of those adjustments have been:

• that special and once highly regarded skills acquired through years of experience are no longer relevant to the industry's needs;
• that anticipated career opportunities have disappeared;
• that continued employment in the industry is available only in a less or differently skilled capacity;
• that hierarchical seniority is lost through transfer to a new department or function;
• that new skills and job requirements must be mastered;
• that customary practices in relation to carrying out of work are substantially altered;
• that current and prospective earning capacity is reduced; and worst of all
• that the industry is not able to use the employee's services at all.

It is, I believe, a natural tendency to dislike and resist changes which have consequences which are so disagreeable. Our experience since 1982 suggests that steel industry employees, being no different from the rest of us, will resist change unless they can be persuaded that change in one form or another is a compelling necessity and that the form of change proposed is a sensible response to the needs of the industry, even though it may involve disagreeable consequences for some of them.

Between now and the end of 1988, new technology resulting from the post-1983 modernisation program will become fully operational; this, together with other productivity-improving changes which have been identified, is intended to enable the industry to increase productivity to a rate of 350 tonnes per employee per annum by the end of this year---a relatively modest target compared with levels currently being achieved overseas. This will involve the further reductions in employment levels which were foreshadowed late last year.

By far the greatest challenge is that of persuading employees that such changes must be made if the industry is to survive and prosper in an environment quite different from that to which we have been accustomed for so many years.

The responsibility for exercising such persuasion rests with management. Our experience since 1982 has confirmed that trade unions are not equipped to fill the role of an effective communications and persuasive link between management and employees and should not be expected to do so. However, unions are capable of frustrating management's efforts unless they also are persuaded that what is proposed should be supported.

Approximately two-thirds of the Steel Group's employees are members of trade unions and most of these fall within membership of 19 unions. Union coverage varies somewhat from State to State but most production and maintenance workers are covered by three unions: The Federated Ironworkers (FIA), the Amalgamated Metal Workers Union (AMWU) and the Electrical Trades Union (ETU). The impact of steel industry restructuring has not been the same for all unions.

Of the total reduction in employment of union members occurring in the steel industry since 1982, 80 per cent have been from the ranks of the FIA.

By the early 1980s, FIA membership numbered about 70,000 of whom about half were employed by the BHP Steel Group. Consequently the big reduction in the Group's employment levels in 1982-83, coinciding as it did with similar cuts in the FIA's other stronghold---the Metal Trades Industry---impacted on FIA membership numbers and revenue much more severely than on any other union and, it might reasonably be expected, gave the FIA additional incentive, if any were needed, to question the Group's programs for change.

For the AMWU this factor of declining steel industry membership is perhaps less critical as Steel Group employment accounts for only some 3 per cent of total membership.

As to the ETU, changing technology is leading to a change in composition of membership employed in the steel industry as well as to reduction in numbers. The number of higher grade tradesmen with post basic trade training qualifications is increasing and the number of employees without such qualifications decreasing.

Whatever the significance of these considerations, generally our experience is that most officials of the unions of which our employees are members now have a good understanding of the environment in which the steel industry exists and accept, in principle, that change is necessary and, in one form or another, unavoidable. However, difficulties in relationships tend to arise when employees and unions' officers are confronted not with general principles but with the specifics of particular changes, more especially those in respect of which the employees most immediately affected have not been persuaded that they should accept the consequences of change.

Quite often in implementing change it is necessary to face the unpleasant truth that for some individuals or groups of employees engaged in a class of work, the short-, medium-and long-term effects of a particular change are clearly identifiable and on balance negative. Nor may it be possible to demonstrate that failure to make the change will of itself prevent the securing of the industry's overall productivity, efficiency or quality targets. Yet experience shows that failure to make or delay in making such changes not surprisingly tends to encourage resistance to other changes.

It is in these circumstances that the employer's powers of persuasion and the commitment by elected union officers to the steel industry plan and to matters of general principle and longer-term significance are sorely tested.

When both persuasion and commitment fail, proposals for change are likely to meet a fate similar to that experienced some little time ago at the Port Kembla steelworks in connection with a quite straightforward proposal to convert 13 service shop cranes from cabin to pendant control, thereby eliminating the need to employ crane drivers full time on particular cranes. The proposal involved a reduction from 38 to 15 in the number of employees required in connection with operation of the cranes. It was strongly opposed by employees and the FIA and became subject of discussions, industrial action campaigns and industrial tribunal proceedings in various forms before the change was fully implemented two years after it had been first raised.

We can no longer afford the luxury of such leisurely and costly progress. Nor can we afford another disastrous campaign of bans and strikes such as that into which Port Kembla employees were led by their union branch officers from March to May 1987, in a futile protest against changes to workers' compensation legislation proposed by the NSW Government.

There are signs that the calamitous effects of the workers' compensation campaign have been recognised and have impacted on attitudes and that this has been reflected in a substantial reduction in the level of industrial action, particularly at Port Kembla, since May 1987. Nevertheless, resistance to change in the industry continues to be strong and it remains to be seen whether a permanent change in habits can be achieved.

The steel industry plan is due to expire in December this year and our basic philosophy is that it should so end as scheduled, and that responsibility for improving industrial relations and developing a viable industry must be taken by the parties to the industry.

It has been agreed that over the coming months there should be extensive consultation with employees and steel industry unions in an endeavour to put in place new arrangements which will ensure achievement of efficiency, productivity and industrial relations objectives necessary for the BHP Steel Group to be a profitable supplier of steel products to the Australian and international markets. As any future growth of the Australian steel industry is likely to be from exports, the securing of consistently reliable performance will be critical.

BHP Steel Group plans are based on a long-term commitment to remain in the steel business on a financial basis which will provide returns attractive to shareholders and be sufficient to support the required capital intensity of the industry. As a result of the investment program undertaken since 1983, we have production facilities which compare favourably with the better facilities in other countries. Our challenging task is to operate our facilities at least as well as our international competitors operate theirs.

If the planned discussions with employees and unions are not successful in resolving the conflict between ingrained attitudes and the imperatives pressing on the industry, the future of the industry and all who work in it or who are dependent on it will be bleak indeed.

On the other hand, if we are successful, the Australian steel industry can be an attractive area in which to invest and work.