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  • Published on: 7th September 2019
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Introduction:

The city of Pittsburgh is located in the southwestern corner of Pennsylvania, and has been known throughout history for a variety of industries, most notably steel. At the industry’s height in the late nineteen sixties to early nineteen seventies, Pittsburgh was the country’s largest steel producer, employing nearly 300,000 in manufacturing positions (Toland, 1983). Today, the industry employs fewer workers as a percentage of its total labor force than even the national average. Instead, the city is known for its universities, medical services, and technological innovation. How, then, did the city transition away from heavy industrial manufacturing and towards service based innovation in little more than a decade? How did the city rebound from unemployment rates upwards of 28% in 1983, to rates of only 5.2% in December of 2016 (Fig. 1); (Briem, 2008); (BLS.gov, 2017)?

While there is no single factor that allowed for Pittsburgh’s transformation, I argue that positive externalities generated by the steel industry, put into effective use by the city’s universities with a singular plan of development, enabled the city’s rapid recovery. In the following analysis, I will show that foundations laid by preeminent steel companies provided the necessary resources for Pittsburgh’s transformation, serving both as attractors of investment and as a source of skilled labor. The universities Carnegie Mellon and University of Pittsburgh, with monetary aid from the steel industry, assumed the role of transformers of human capital, allowing for economic diversification and development. However, these resources alone are insufficient to explain the city’s transformation. This transitional time period, from the early nineteen eighties through early nineteen nineties, required a concerted effort by a city commission, made up of Pittsburgh’s political and economic leaders, to create a plan of action and to facilitate cooperation towards a common goal.

History: The Forge of the Universe

In order to prove how the steel industry effectively primed Pittsburgh’s economic environment for comeback, it is necessary to understand how an economy reliant on a single commodity could produce the groundwork for later diversification. In the early stages of industrialization, coal powered the country, and certainly the city of Pittsburgh with its natural endowments of “timber, coal, iron ore, and clay” (Mueller, 2001). This specific combination of natural resources and convenient shipping location, at the confluence of the Allegheny, Monongahela, and Ohio rivers, was particularly conducive to manufacturing. As the Civil War prompted an increase in demand for iron, Pittsburgh rose to meet that need, laying the infrastructural groundwork for its later prosperity and earning the nickname “Forge of the Union” (Barcousky, 2013). The city’s fledgling success additionally attracted the Carnegie family, of which Andrew would go on to lead the transition from iron to steel. This seemed a natural progression, given the region’s established transportation routes and abundance of coal, an essential element in the steel making process (Nasaw, 2006). Such high levels of economic activity additionally attracted other investors such as Thomas Mellon, J.P. Morgan, and Charles M. Schwab. In 1901, the largest steel companies merged to form U.S. Steel, the world’s first corporation valued at over one billion dollars (“History of U.S. Steel”).

History: Steel Begins to Rust

By the time America entered WWII, the state of Pennsylvania was supplying twenty percent of the world’s steel, while the country as a whole continued to increase its output in order to fulfill increasing demand. The industry finally peaked in GDP intensity (kilograms of crude steel consumption per U.S. $) in 1975, though relative to the international market, American steel had been on the decline since the conclusion of the war (fig. 3). This slow demise of Pittsburgh’s keystone industry can be attributed to three main factors: the rise in competition from developing nations, general recessionary effects from the petroleum shock of 1973, and decline in steel-intensive industries. The first accounts for most of the decline in the American steel industry, as developing countries surpassed self sufficiency and began to saturate the market with exports, producing at far lower costs and driving prices down (USITC, 1991).

Another significant component of America’s inability to compete, and more specifically Pittsburgh’s, stemmed from inefficiencies of large scale operations. The city’s early factories, once at the cutting edge of manufacturing, could not compete with more efficient plants overseas or domestic “mini-mills,” which used scrap instead of iron ore (Chavez, 1981). The increase in number of these mini-mills rendered producers that had previously relied on economies of scale and vertical monopoly power, most of them based in Pittsburgh, ineffective (Halusha, 1995). Furthermore, while the oil shock affected all steel producing regions in the country, Pittsburgh suffered a more severe downturn for its continued use of oil intensive production processes (USITC, 1991). However, Pittsburgh’s observed decline in relative production from the years 1940-1970 show that market share would have continued to decrease even without the oil shock (fig. 8 and 9); (Giarratani, Madhaven, Gruver, 2012).

Despite the positive implications of advancing from a manufacturing based economy to the provision of services, this transition was especially difficult given Pittsburgh’s lack of diversification. In 1969, one in three residents were employed in the manufacturing sector %OF GDP? (Ahlbrandt and Weaver, 1987). One of the first major signs of change came in 1968, when Jones and Laughlin (JJ&L) , the second largest steel employer in Pittsburgh and fourth largest producer in the US, sold out to the Ohio-based conglomerate LTV (Gaughan, 2002). Those laid off delayed looking for new employment opportunities, believing the shock was temporary. Years passed before people began to acknowledge they would not be recalled, and in 1983, the last J&L blast furnace fell to a planned implosion. 8,000 workers were immediately laid off (Pro, 2004); (Ireton). U.S. Steel also went through multiple rounds of layoffs, shutting down temporarily in 1980 and again in 1982. For the largest steel producer in Pittsburgh, the end came in 1984, when the Duquesne and Clairton factories closed. Two years later Homestead works closed down, and by then Pittsburgh had lost 133,000 manufacturing jobs in less than a decade and over 180,000 residents (fig. 1); (Toland, 2012).  Unemployment peaked in 1983 with Allegheny County reaching levels upwards of 14%, Beaver County at 27.1% and the greater Pittsburgh Metropolitan area at 17.1% (“Pittsburgh’s Reinvention,” 2015); (Toland, 2012).

The Significance of Education

Thus 1983 is to Pittsburgh what 1933 is to the United States. However, by 1985, Allegheny county’s unemployment rate fell to around eight percent, the same as the national average, and Pittsburgh was named “most livable city” by Rand McNally (Majors, 2007). Behind this surprising turnaround were the universities, at least in part. As education is one of the more resilient industries during economic downturns, the University of Pittsburgh and Carnegie Institute of Technology found a new role thrust upon them; one of city-wide economic guidance. Thus it may be argued that it was rather institutes of higher learning that generated Pittsburgh’s recovery, but were it not for the steel industry, Pittsburgh would not have the Carnegie Institute of Technology at all, and the University of Pittsburgh would look quite different as well.

The Carnegie Technical Schools were founded by Andrew Carnegie’s one million dollar grant in 1900. Meant as a way to train the children of unskilled workers, the early technical school soon became the baccalaureate degree granting Carnegie Institute of Technology after attracting such high demand. The college specifically recruited physicists, chemists, and metallurgists, serving as a pipeline of highly trained talent for the booming industrial sector (Thrush, 2014). While Carnegie Mellon retained its industrial roots, it soon expanded to computer engineering, offering the first undergraduate computer science courses and securing the one of IBM’s first 650 computer models (“Mission and History”). The university has continued to serve as a technological pioneer, now excelling in artificial intelligence and robotics, a particular source of attraction in the 1980’s when the city was facing its major sectoral shifts.

The University of Pittsburgh similarly benefitted from the generosity of steel money as Andrew Mellon established the Mellon Institute in 1911. Serving as a department within the university, the Mellon Institute was designed specifically for industrial research and served a role similar to a modern consulting firm with a mechanical bent (Wilson, 1994). The school’s health care branch additionally benefitted from such acclaimed success, attracting further investment. As steel boomed in the mid-twentieth century, so too did innovation in health care, as the University of Pittsburgh saw the invention of Jonas Salk’s polio vaccine and became the world’s leading transplant center (Kane, Srikameswaran, Hamill, 2005); (Harper, 1957). This early development of the technology and health care sectors, in conjunction with the abundance of skilled labor and educational infrastructure, would provide Pittsburgh with the necessary resources to undergo its transformation.

The Golden White Paper: Strategy 21

Even though steel output was increasing in the late 1960’s, Pittsburgh’s leaders could see the steel industry was headed downhill. If they underestimated the magnitude of the decline, they did take concerted steps to ensure there would be alternatives when it inevitably crashed. This leadership took official shape in the form of the Allegheny Conference on Community Development (ACCD) which was initially formed as a post-WWII planning committee. Setting a precedent for future plans, the first Conference was an organization of public and private leaders made up of local politicians and top level executives who worked together to ensure mutually beneficial outcomes for the city. Initially, the ACCD focused its attention on Pittsburgh’s pollution and racial disparities, but, by 1983, the group had shifted its purview towards pulling the city out of the economic ruin left by the steel industry (Ruby, 2013). Comprised of around 30 total CEO’s and top university officers, the Conference adopted an advisory role, suggesting the best course of action but leaving funding and implementation to its members’ organizations and other relevant parties. The ACCD began drafting its first report, Strategy for Growth: An Economic Development Program for the Pittsburgh Region, in 1981, and released it in 1984. “The report articulated a strategy based on the principles of balanced growth, a long-term perspective, reliance on the marketplace with a supportive role for government, and coordination of separate efforts rather than central planning” (Ahlbrandt and Weaver, 1987).

City leaders were not idle during the interim period; they began the implementation of ten main projects, of which the University Technology Program, the Customized Job Training Plan, and collection of corporate support plans had the greatest impact. Together, they increased innovation and eased the transition from research lab to market, incited the construction of a new biotechnology center and robotics laboratory at the former Jones and Laughlin plant site, provided small and emerging companies with capital and risk mitigation, and provided employees with retraining specific to the current needs of the economy. This collection of development strategies, eventually dubbed “Strategy 21,” was funded by the universities and corporations themselves, with the state government providing matching grants. In 1983, Pittsburgh received $1 million from the state and by 1988 the Commonwealth had provided over $28 million. These partnerships consisted of a multitude of voices; between the university faculty, state representatives, economic development groups, and labor unions who all collaborated on implementation, the development plan represented the interests of the city as a whole.

Black and Gold turns White Collar

The city’s two major universities took on an additional key role in founding the Western Pennsylvania Advanced Technology Center (WPATC) in 1983, which directly contributed to the expansion of 99 existing companies, creation of 96 new companies and 1,200 new jobs, retention of 380 jobs, and enrollment of 2,800 in retraining programs. One story, published in 1986, explains the story of Larry Prisbylla, who after years of working at the steel mill, found he had no marketable skills and remained unemployed for four years before enrolling in the Community College of Allegheny County’s (CCAC) retraining program. He became a nurse in just three years, along with thousands of other former steelworkers. Though Carnegie Mellon and the University of Pittsburgh may have led innovation from the top end, attracting the best talent, building infrastructure, and providing plenty of higher degrees, the Community College of Allegheny County picked up the slack/burden from the lower end, retraining former steel workers who had no more than a high school education, if that. (Russakoff, 1987). With funding from the state and other private entities, CCAC provided approximately 13,000 former steel workers with free education, mostly in the health sectors and computer technology. “A Mellon Bank vice president said 50 people, at least a third of them ex-steelworkers, now apply for every computer technician opening at the bank,” evidencing the willingness of many Pittsburgh workers to make the difficult transition (Russakoff, 1987). Other jobs related to the booming health industry did not require so much training, and many of the laid-off steelworkers were able to transition more smoothly into similar positions like manufacturing medical syringes like one Ryan Campbell. These stories are not isolated incidents, they represent the experience of the majority who made the decision to remain in Pittsburgh despite the transitory conditions characterized by no wages, no benefits, and very few jobs (Streitfeld, 2005). Those who’d built their lives on the steel industry, with a little help from the city and universities, provided the city with a wealth of engineers, the fifth largest concentration in the country (Risen, 1986).

Pittsburgh’s Second Renaissance

Just three years of concerted effort allowed the region to go from 17% unemployment to around 6% (Briem, 2008). In 1986, the Pentagon chose Pittsburgh as the location for its new Software Engineering Institute, both a result and causal factor of the “600 high technology companies [that] relocated or started in Pittsburgh” from the years 1977 to 1987 (Gruson, 1987). The Carnegie Robotics Institute opened in 1986 and soon became “the world’s largest industry financed center for research in robotics and and manufacturing technology (Risen, 1986).

Employment showed large positive recovery as the innovation and technology comes not only in computers and robotics but medicine as well. Health services saw an employment increase to 87,000 which in 1986 became the largest sector of employment (Gruson, 1987). As investment breeds more investment, it seems Pittsburgh is creating a positive cycle of growth for itself. Macroeconomic theory supports this claim as technological growth is the only source of sustainable long-run growth (“What drives long run…”). Just one year later, Pittsburgh was the third largest corporate city, home to Westinghouse Electric, Gulf Oil, U.S. Steel, Alcoa, and more (Kornheiser, 1980). The cost of living was low and the potential for returns on investment high, Strategy 21 was a success.

Red Herrings:

There are some indicators that Pittsburgh never fully recovered from the height of its steel days, that real wages are now less than what they were before the crash. However, a negative for consumers at face value, artificially high wages were a large contributor to steel’s decline as part of the aforementioned inability to compete with mini-mills. While manufacturing jobs and highly unionized steel workers were earning 18.3% higher wages than the national average, the steel companies were paying for labor peace at unsustainable rates (Herzenberg and Wial, 1997). Factory workers, some without high school degrees, were paid salaries equal to those of college level graduates, and it was creating inefficiencies in the system. A more competitive work environment has allowed Pittsburgh to stay ahead of the technological grind.  

Another possible caveat to the argument is the possibility outmigration as an explanation for Pittsburgh’s recovery. While outmigration certainly contributed to the appearance of recovery in terms of unemployment levels, there are two main reasons it cannot be the main explanation. Firstly, migration from the city began in the late 1950’s to early 1960’s, at the height of the industry’s output. Thus the region was seeing population declines for reasons other than the steel industry, though the crash did exacerbate it. Secondly, Pittsburgh has long suffered from an aging population in which there is some outmigration but also high death rates without high in migration rates to offset this loss. Lastly, many people born in Pittsburgh tend to stay in Pittsrbugh with 92% of residents residing in the same region and 66% residing in the same house between 1995 and 2000. These numbers would be even higher during the 1980s in which approximately 75% of the city could trace their roots back three generations (Andrews, 2013); (Kornheiser, 1980).

Industrialization to Innovation Success: North Carolina’s Golden Research Triangle

Historical comparisons show a similar situation in North Carolina, previously known for its textile manufacturing and agriculture. Today, the research triangle, which is anchored by the University of North Carolina Chapel Hill, Duke University, and North Carolina State University, enjoys a similar reputation to Pittsburgh as a center of growing innovation both medically and technologically. It may be inferred that this region of North Carolina, suffering from similar declines in the competitiveness of its main industry, was similarly able to recover due to the success of its highly regarded research universities. One study from the Journal of the Historical Society affirms the common belief that the research institutes did have a positive effect on development after the decline in textiles and emphasizes the importance elite figures from the old economy of which was previously not part of the narrative (McCorkle, 2012). This is extremely similar to Pittsburgh’s case in which the resources were there, but leadership and a single directional goal was needed.

Sectoral Shifts: Detroit’s Failure

While Pittsburgh and Raleigh both found success following deindustrialization of their keystone industries, Detroit, Michigan found prolonged stagnation and social strife. The main difference between Pittsburgh, Raleigh-Durham, and Detroit? Universities. The absence of strong research universities in Detroit hindered the city’s ability to recover, leaving it with a dearth of innovative minds and no infrastructure to create, nor capital to start. As previously stated, technological growth is the key variable to long run growth.

Conclusion:

Once again, some may point out the second degree connection between steel and Pittsburgh’s post-deindustrialization recovery. But without steel, Carnegie-Mellon University would not exist, and the University of Pittsburgh would look different if not bankrupt, having incurred $8.1 million of debt in 1921 (in today’s $). Not only did Andrew Mellon pay off this debt from his personal funds, he donated more than $10 million dollars to the institute over the course of his life, leading the University to have the 27th largest endowment in the country (O’Neill, 2017). Steel money built the city of Pittsburgh, forged the culture and people, and enabled a metallic resilience that has since allowed the city to thrive through economic ups and downs.

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