Reinventing American Cities: RealEcon Visits Western Pennsylvania and New York

The Council on Foreign Relations (CFR) RealEcon team was back on the road in July to continue its fact-finding tour, aimed at better understanding what Americans across the country think about U.S. involvement in the international economy. Following visits to Florida in March and Wisconsin in April, this latest trip focused on several industrial cities in western Pennsylvania and New York.

The week-long trip took us to Pittsburgh, Butler, the Shenango Valley and Erie, Pennsylvania, as well as Buffalo, New York. During our trip, we had the opportunity to speak with managers and workers from the steel and robotics industries, biomedical research, international logistics, light manufacturing, and many other industries. We also met with city administrators and economic development officials, university professors, and local journalists.

The cities we visited were once thriving centers of steel production and processing. During World War II, Pittsburgh produced more steel than Japan. At its peak in the 1940s, the Bethlehem-Lackawanna steel mill outside Buffalo employed twenty thousand workers and was the largest steel producer in the world. In the early 1900s, Erie was the global epicenter of engine and boiler manufacturing, and by World War I, the city was home to over five hundred manufacturing plants. These industries produced well-paying jobs, good benefits, stability, a strong work ethic, and pride. For many Americans, studying in the steel mills offered better economic prospects than going to college.

During the 1970s and 1980s, many steel mills and other manufacturers in the areas we visited closed or relocated to other parts of the United States or the world, resulting in job losses, population decline, increased poverty, and a host of economic and social problems. Erie was at one point the poorest zip code in the country. Buffalo lost 100,000 residents in the 1970s, and by 2007, 27 percent of the city’s residents were considered poor. Many wondered if these cities would ever recover.

The causes of decline in these areas have long been analyzed and debated. We asked this question of the people we met and heard a variety of answers, including poor management decisions, the role of unions, and globalization. In the steel industry, we heard that management did not adapt quickly enough to technological change and did not always make smart business decisions. For example, Bethlehem once used Siemens-Martin furnaces that took six to ten hours to produce a “batch” of steel, even though the oxygen-blasting process was available and could produce a batch in an hour.

The Northeast has a long tradition of strong unions, and many manufacturers moved south to right-to-work states where wages were lower. According to one former steelworker we met, as unions strengthened, higher wages and pensions became unsustainable. A long steel strike in 1959 and a decision by steel producers to ration steel to drive up prices exacerbated the situation, he said, prompting domestic consumers to buy steel abroad.

International factors also played a role. In the 1970s and 1980s, we heard, it was difficult for companies to compete with French, Italian and Japanese manufacturers because wages, pensions and safety and environmental regulations were much lower in those countries. More recently, while the North Atlantic Free Trade Agreement (NAFTA) in its current form did not hurt U.S. industry because Mexico was not a competitor in the steel market, other countries used NAFTA to bring steel to Mexico and then dump it in the U.S.

Although some traces are still visible, the cities we visited in July looked very different from their former industrial heydays or days of despair. Strategic investments in technology, medical research and education have helped get many of these places back on their feet. In Pittsburgh, federal and local funds—including from the Heinz, Hillman, Mellon and other foundations—have gone toward brownfield redevelopment, advanced robotics manufacturing, biomedical research and manufacturing, and education, creating clusters for innovation and knowledge sharing. In Erie, numerous development agencies are also investing in downtown renewal, and federal development zoning and private investment are also playing important roles in the city’s revitalization. In Buffalo, historic federal and state tax breaks have helped the city get back on its feet.

Universities are also critical. In Pittsburgh, Carnegie Mellon University (CMU), the University of Pittsburgh, and Duquesne University have intentionally partnered with the public and private sectors to reinvent the city through innovation and knowledge centers conducting cutting-edge research. University administrations have developed strategies to rebuild the former steel mills and provide the talent needed to fuel key sectors. Similar dynamics are evident in the other cities we visited. An initiative called Ignite Erie has boosted university involvement in local economic development in that city by bringing together entrepreneurs, educators, students, policymakers, and elected officials. The University of Buffalo is also an important part of the growing medical campus there.

While diversification and expansion of service sectors are important elements of economic change, throughout the trip we also saw the critical role that manufacturing still plays in the economy. Case in point: the Cleveland Cliffs Butler Works, where a sprawling, sophisticated—and noisy—production line produces 0.4 million tons of crude steel each year, mostly for electrical transformers on telephone poles and in power plants. Workers there argued passionately that services alone cannot keep an economy running; the ability to make things and maintain value-added production processes is vital to the economy and national security. The steel produced at Butler, for example, carries electricity to homes and businesses across the United States. They pointed out that building manufacturing capacity requires long lead times and that the mills’ technical and practical knowledge is built over generations. Most of the people we met at Butler Works had worked there for decades, as had their fathers and grandfathers, and it was clear how important the plant still is to this community.

Throughout our tour, the cities and regions we visited were clearly making great progress but still face many challenges. Human capital is essential to change, but companies often struggle to find skilled workers to fill open positions. While Pittsburgh’s research universities attract talent from around the world, the city struggles to get students to stay, in part because of restrictive visa requirements and quotas. Shenango Valley business leaders expressed frustration at the lack of a skilled and motivated workforce for manufacturing jobs, arguing that many people today aren’t interested in the demanding work or wouldn’t pass a drug test or background check. The challenge of getting young people to stay and attracting new talent is a theme we heard throughout our trip.

International competition can also be a challenge. One complaint we heard frequently was that high wages and environmental standards put American companies at a disadvantage when trying to compete with countries that don’t meet those standards. Many people we spoke with wanted the federal government to ensure international parity, through tariffs if necessary. Others suggested bringing our own standards at home in line with international realities, including adjusting what they called “heavy-handed” environmental regulations.

We’ve also heard that even when the government intervenes, it often does so in an inconsistent or ineffective manner. Tariffs on steel imports from certain countries have been circumvented by transshipping through friendly countries like Mexico. Although U.S. sanctions have been imposed on steel from Iran and Russia, it still makes it to the U.S., while Chinese steel is often shipped to other countries, undergoes minimal processing there, and then sold to the U.S. as a product of that third country. One Shenango Valley business leader complained that while he has hired lawyers in Washington to fight unfair practices like this, it’s a constant game of whack-a-mole.

On the banks of Pittsburgh’s Monongahela River sits a former steel mill called Mill 19. The skeleton of the old plant is still there, but the roof is covered in solar panels, and inside there is, as CMU describes, a workspace that brings together innovators and industry partners to “apply digital innovation, advanced manufacturing technology, and human intelligence to the production of the future.” Mill 19 is the literal and metaphorical representation of the transformation of the industrial cities we visited, with new sectors and innovations emerging from an industrial past: the past is not shunned, but reinvented to build back stronger.