Drivin' Big Bess Down
The Fontana plant has the potential to be competitive with any in the world. (1980)
You can't melt steel in the middle of a residential valley profitably. (1981)
Elliot Schneider, steel industry "expert"[86]
Like every decline and fall, Kaiser Steel's was an accumulation of ironies. One was that the future began to slip away from Fontana not in the midst of a recession, but at the height of the Vietnam boom. Kaiser was forced out of a rapidly expanding market. Another irony was that, although Kaiser executives in the last days would complain bitterly that Washington had abandoned them in the face of Japanese competition, the company had collaborated avidly with that very same competition in a vain attempt to restructure itself as a steel resource supplier. Kaiser was literally hoisted on its own corporate petard.
After firing up its first Basic Oxygen Furnace (BOF) in 1959, Kaiser
Steel neglected plant modernization for almost fifteen years. Having wrested the West from Pittsburgh, it ceased looking over its shoulder at the competition. In the meantime Asian and European steelmakers were rapidly moving ahead with a technological revolution that included full conversion to BOF and the introduction of continuous casting. Kaiser fought the Japanese, its erstwhile protégés and main competitors (whose original plants Kaiser-made "goop" had incinerated in 1945), with Pearl-Harbor era technology that included obsolete open-hearth furnaces, old-fashioned slab casting, thirty-five-year-old blast furnaces, and dinosaur, over-polluting coke ovens. Although Kaiser protested that the Japanese steel industry enjoyed "unfair" state subsidies, this hardly explains why its own investment program (the company was in the black until 1969) failed to sustain technological modernization. If Kaiser Steel squandered its once formidable technical leadership, it was because, unlike the more single-minded Japanese, it purposely diverted its cashflow into alternative accumulation strategies.
In truth, Fontana and the other fifty-odd Kaiser enterprises were an unwieldy legacy. After Henry J.'s retirement to Hawaii in the mid 1950s, Kaiser Industries evolved as a family holding company with decreasing hands-on affinity for the world of production. Orthodox financial management, not heroic technical problem-solving, became the order of the day. From this basically rentier perspective, Kaiser Aluminum, with its consistently high profit margins, became the family's darling. Kaiser Industries' long-range planning focused on how to complement aluminum sales to the Pacific Basin with other primary product exports. When, in the early 1960s, the Japanese demand for steel began to soar (as a result of the first stages of a "Fordist," home-market-led expansion), Kaiser Industries (the major shareholder in Kaiser Steel) was more concerned about sourcing this demand with raw materials than with the future implications of expanded Japanese capacity for international competition. Specifically for Kaiser Steel this entailed a fateful diversion of its plant modernization budget to purchase export-oriented iron ranges in Australia and coal mines in British Columbia. Eagle Mountain was also expensively remodeled, with an elaborate pellatizing plant added to process iron ore for export to Japan. Thus, years before US Steel's notorious acquisition of Marathon Oil with funds coerced from its basic steel workforce in the name of "modernization," Kaiser Steel was restructuring itself, with diverted capital improvements, to export resources to its principal competitor, while allowing its own industrial plant to become obsolete.[87]
The Vietnam War—which jump-started the Japanese export offensive—dramatically transformed economic relationships around the Pacific Rim. In 1965 Japanese steel imports claimed a tenth of the US West Coast market; by the war's end, a decade later, nearly half the steel in California was Asian-made and the state was officially included in the Japanese steel industry's definition of "home market." Kaiser Steel made large profits exporting iron and coal to the Japanese only to see these raw materials shot back at them in the form of Toyotas and I-beams for skyscrapers. Together with US Steel's Geneva mill (still entirely open-hearth, since USS's plant modernization had been concentrated in the East), Kaiser Fontana could supply barely half of Western demand, and they were constrained from adding capacity because of their technological inability to compete at cost with the foreign steel. Thus the Japanese, and increasingly the Koreans and the Europeans as well, were able to confiscate all the Vietnam-boom growth in Western steel demand. The so-called "trigger price mechanism," adopted by the Carter Administration at Big Steel's urging, only worsened the situation on the West Coast. Trigger prices were too low to prevent Japanese imports and, because they were calibrated higher in the East, they actually encouraged EEC producers to dump steel in California.[88]
In the meantime Kaiser's vaunted labor peace was beginning to erode. Over the years relations between workers and managers had calcified at the shop level—a situation that was exacerbated by the recruitment of truculent managers from Big Steel during the 1970s. At the same time the incredibly complex formulae of the Long Range Sharing Plan continued to generate pay inequalities that had already sparked protest in 1964-65. Workers retaining membership in the older incentive scheme were winning pay increases at a dramatically higher rate than participants in the general savings scheme (a trend which also aggravated inter-generational tension within the union). Likewise LRSP remuneration seemed arbitrarily detached from individual productivity efforts.[89]
Faced with a new wave of rank-and-file discontent, the recently elected president of Local 2869, Dino Papavero, called a strike vote in February 1972. The resulting 43-day walkout was the first "local issues" strike—apart from the two 1957 wildcats—in the plant's history. Papavero, who clearly visualized the import threat, hoped that the strike would be a safety-valve, releasing accumulating tensions and paving the way for a new labor-management detente. With the encouragement of the company, he launched a plant-wide "quality circle" movement in a last-ditch effort to raise productivity to competitive levels. Although workers cooperated in hundreds
Fontana, Capitol of the Smog Belt
of improvements, management appeared to go along for a free ride, refusing to implement the broad capital modernization program that was necessary to save the plant. Moreover there was the traditional dissonance between Local 2869's priorities and the international's goals. USW Regional Director George White—as always, concerned about the impact of Kaiser innovations upon Big Steel—opposed the work-rule-weakening precedent of the quality circles. He was supported, moreover, by Fontana rank-and-filers embittered by the long walkout and fearful of the loss of hardwon seniority rights and clearcut job boundaries. In 1976 Papavero, the main advocate of cooperativism in the historic spirit of the LRSP, was defeated by a more confrontationist slate.[90]
The year 1976 was indeed one of bad omens. Steel profits had entirely collapsed, and Kaiser Steel's net earnings were exclusively sustained by profits from resource exports. The long delayed modernization program, aiming at full conversion to BOF and continuous casting, was finally launched, only to immediately encounter complaints about the plant's role as chief regional polluter. Since the 1960s Fontana had emerged as the literal epicenter of air pollution in Southern California, and Kaiser Steel's huge plume of acrid smoke became indissolubly linked in the public mind with the smog crisis in the Inland Empire.[91] (See map.)
The actual situation was considerably more complex: aerial photographs taken by Kaiser during the 1972 strike, when the plant was entirely
shut down, showed no abatement in air pollution.[92] Moreover many ex-steelworkers still vehemently believe that the Kaiser pollution scare was purposely manufactured by developers who regarded the plant—smog-spewing or not—as a huge negative externality to residential construction in the Cucamonga-Fontana area. As San Bernardino County's West End fell under the "urban shadow" of Los Angeles and Orange County, developable property values came into increasing conflict with the paycheck role of the mill as leading local employer. Inevitably the pollution debate reflected these divergent material interests. While developers became strange bed-partners with environmentalists in demanding a huge cleanup at Fontana, the Kaiser workforce joined with its management to protest the costs of abatement. As one ex-steelworker put it, "Hell, that smoke was our prosperity."[93]
In any event, Kaiser was forced to sign a consent decree with the Southern California Air Pollution Control Board that mandated $127 million for pollution reduction. This was more than half of the modernization budget.[94] Partly as a result—from 1975 to 1979 while "modernization" was being implemented—the union was forced to accept painful triage. Capacity was ruthlessly pared as older facilities were scrapped, including the open hearth, the cold weld, pipe and cold roll mills, and, finally, the original BOF. The inefficient and polluting coke ovens, on the other hand, were deemed too expensive to replace and were left intact. Fontana, in quiet anguish, began to bleed away its future. Four thousand younger workers—sons, brothers, and a few daughters—were laid off by seniority. With the company reassuring them that the new technology would restore price competitiveness, Local 2869 accepted partial decimation as a necessary sacrifice to save the plant and the community of steelworkers.[95]
When, at last, the new Kaiser Steel chief, Mark Anthony, launched the modernized facilities in an elaborate ceremony on 9 February 1979, he proclaimed the company's "rededication to making steel in the West."[96] But the new technology—including BOF 2, the continuous caster, and state-of-the-art emission controls—proved cruelly disappointing. Startup costs were staggeringly over budget, and pollution from the antiquated coke ovens continued to embroil the plant in battles with local and federal air quality control agencies. In the face of this deteriorating situation, and with the vaunted modernization program near shambles, Anthony was removed, and Edgar Kaiser, Jr., personally took the helm, advised by experts from his family's investment bankers, First Boston. Although company publicists extolled the return of "Kaiser magic" to active management,
most workers were skeptical.[97] Henry J.'s grandson was widely viewed as a "playboy," more interested in his toys, like the Denver Broncos, than in saving California's ailing steel industry.[98]
Mistrust became rampant as the Kaiser family's real strategy was gradually revealed. Years later Edgar Jr. confessed to an interviewer that, despite all the promises to the contrary, he had been sent to Fontana in 1979 by his father as a liquidator:
We were both in tears. I knew what it meant. Nobody else saw it, but I knew what I had to do . . . break up a lot of Steel. I sold off a lot of divisions of Steel. My first day on the job was the prodigal son returning. I had to go out after 30 percent of the workforce at Fontana. . .. It sure wasn't fun.[99]
The Kaiser family had in fact been engaged in negotiations with Nippon Kokan KK, the world's fifth largest steelmaker.[100] The Kaisers wanted the Japanese to take over Fontana while they restructured Kaiser Steel as Nippon Kokan's resource supplier. This was, perhaps, the inevitable consequence of the company's long-term bias toward resources rather than steel products. But to Oakland's consternation Nippon Kokan did not take the bait as expected. Instead, following detailed technical inspections of Fontana by its engineering teams, the Japanese giant politely declined Kaiser's offer.[101]
As Kaiser Steel ran out of cash and its stock plummeted on the exchanges, a second merger deal was hastily confected and put on offer to Dallas-based LTV. The negotiations collapsed in the face of the Volcker-Reagan recession, which plunged the US steel industry into its worst crisis since 1930.[102] On the West Coast, local branch-plant manufacture was swept away by a typhoon of Asian imports. At the very moment when Fontana's fate depended on an iron will to survive—as during Henry J.'s fight to pay off the RFC loan after World War Two—the Kaiser heirs reached for the financial ripcord. The cherished goal of a resource-oriented restructuring was abandoned in favor of a staged liquidation of Kaiser Steel.
In order to keep Fontana temporarily afloat as an attraction to potential buyers, and to drive stock values up to assuage panicky stockholders, the Kaisers sold off the Australian ore reserves, the British Columbia coal mines, and the Liberian ore shipping subsidiary.[103] Edgar Jr. withdrew as CEO in 1981 after, as promised, "breaking up a lot of Steel."[104] The new managerial team, after a few months of bravado about a "crusade" to save the blast furnaces, stunned the survivors of previous cutbacks with the announcement that ore mining at Eagle Mountain and primary steelmaking
at Fontana would be phased out, while the modernized fabrication facilities were put up for sale. Barely two years after their ceremonious "rededication," BOF 2 and the continuous caster were being written off as scrap, a $231 million loss.[105]
Local 2869 mustered for a last stand, as best it could, but it had tragically few friends or resources. A desperate move to trade wage and work-rule concessions for job-protection guarantees was cold-shouldered by the company before being vetoed altogether by the international.[106] As horrified members watched another two thousand pink slips being readied, the Local clutched at the final straw of an employee buyout, an "ESOP."[107] British Steel, long interested in finding a stable market on the West Coast for its unfabricated steel slabs, signaled that it was ready to consider a liaison with a restructured Fontana mill under ESOP ownership. Local 2869 retained the Kelson Group as advisors and sent representatives to Sacramento to lobby Governor Brown and the Democratic leadership.[108] In any event, however, Kaiser's intransigence about the ESOP frightened off British Steel, while government intervention on behalf of Fontana—or, for that matter, of any of California's floundering heavy industrial plants—was ruled out by Jerry Brown's new entente cordiale with the California Business Roundtable.
Meanwhile, San Bernardino County leaders were divided over the implications of the closure of Kaiser Steel. Having boasted for years that Kaiser pumped nearly a billion dollars annually into the local economy, they were anxious about the loss of so many paychecks. But apprehension was balanced by delight at the thought of rising real-estate values and the removal of the county's principal environmental stigma. As a result, with the exception of pro-union Democratic Congressman George Miller, the local elites and politicos sat on their hands.
In the face of this inertia in the local power structure, Local 2869's only remaining hope might have been a militant community-labor mobilization against shutdowns that allied Fontana with similarly threatened factories and communities like Bethlehem-Maywood, General Motors-South Gate, or US Steel-Torrance.[109] Unfortunately there was no tradition of communication or mutual support between Southern California's big smokestack workforces. Moreover the international unions and the county federations of labor tended to oppose any rank-and-file or local union initiative that threatened their prerogatives. When the rudiments of such a united front—the Coalition Against Plant Closures—finally emerged in 1983 it was too little and too late to save Fontana. At best, some of the survivors managed
to float a life raft: the Steelworkers' Oldtimers Foundation, which has helped unionists deal with the bitter aftermaths at Fontana and Bethlehem.