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The midwaest Finds life After Steel

As the industrial heartland pulls out of a period of multiple recessions and harsh restructuring, it offers lessons for the rest of the country

THERE is perhaps no better place to see the transformation of the industrial Midwest than here, high on a bluff in Pittsburgh, overlooking the Monongahela River.

Ahead is the old Jones & Laughlin Steel plant. It employed thousands before it was reduced to rubble. In the distance gleams Pittsburgh's success story. Visitors come from around the world to see how the city remade itself after the most serious challenge since the Great Depression.

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So it goes throughout America's industrial belt. Blindsided by foreign competition, multiple recessions, and high interest rates, the region slowly, torturously restructured during the 1980s. Today, smaller but smarter, it offers some lessons for the rest of the country. First, there is life after restructuring, but it is a different life.

"People found it very hard to imagine that there would be an economy after steel," recalls Timothy Parks, executive director of the Pittsburgh High Technology Council. "Our economy seemed to be based on steel and mining and other industrial [sectors]. But the economic asset of the region resided underneath all that.... What it required was peeling away from the region some of the perceptions of what the economic asset of the region really was."

As it turned out, Pittsburgh's real asset was not the plants but the knowledge of the workers within those plants, he says. A biotechnology center stands on part of what was Jones & Laughlin Steel, but its opening has been held up and it stands mostly empty. That's a second lesson of the industrial heartland: Find your strengths and build on them.

Rick Brown understands that idea. In 1987, he and some colleagues took over part of a 100-year-old industrial company here and turned it into a high-tech success. His Daxus Corporation helps manufacturers be more efficient.

Although tied to the declining steel industry, Daxus succeeded because its experience in large-scale automation and process control was ahead of other industries. Today, two-thirds of its revenues come from outside steel.

"Organizations that are able to adapt and can view it as an opportunity and not a threat will survive," says Mr. Brown, the company's president and chief executive officer.

This can-do attitude is seen throughout the work force. "I found myself in an industry that was shrinking, working in a plant that was dying," recalls Tom Kennedy of his days at Daxus' old parent company, Dravo Corporation. "I looked at it as an opportunity to accomplish something. It's all in how you respond."

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The problem with the Daxus model is its size. Dravo employed 100,000 people. Daxus has less than 100. Although the number of high-tech companies in Pittsburgh has nearly tripled in the past decade, they have not made up for the loss of manufacturing jobs. That's a third lesson from the heartland. Restructuring has created a great divide: While many workers do better than ever, many others never recover.

Lorenzo Wallace represents the flip side of the Daxus story. He lost his job at a Detroit coke plant in September 1991 and has been unemployed since. He gets by managing an apartment complex and teaching tennis in the summer but refuses to take food stamps. He has learned lessons, too.

"You come down a notch in money but you also gain experience," he says, sitting in a car opposite Mr. Jo-Jo's Delicatessen in Detroit. Suddenly, a man comes out carrying two white bags. "See those sandwiches? Those are $7 apiece. He's got a couple of two or three of them. That's $20 or $30. I can eat for a month" on that.

Wallace says he's got 1,000 resumes out but all the jobs either require special skills he doesn't have or are located in the suburbs. Of the 120 listings in that day's Detroit News, he qualifies for only a handful.

Many Midwest observers worry that such workers will be left behind permanently. "The country is moving rapidly into a job-shortage economy," warns John Plunkett, who runs a Chicago jobs program for the inner-city poor.

"I think the free lunches are over," counters Richard Vicario, mayor of Bellefontaine, Ohio. "They tell me: `I can't find a job.' [I tell them] `I bet you that I can go out and in one hour I will have a job.' " It may not be the right kind of job or at the right pay, he adds, but that's how someone starts over and works his way up again. Unemployment in his small industrial town rose to 17 percent before Honda moved a plant into nearby Marysville. (See story, left.)

These contrary views represent the heartland's policy dilemma: How big a role should government play? That's a fourth lesson of restructuring. While the private sector has adapted, government has not.

"In a certain sense, we've gone through Phase 1 and not gone through Phase 2." says Peter Likins, president of Lehigh University and a member of former President Bush's council of science and technology advisers. "We see considerable evidence that companies through restructuring are ... returning to profitability. [But] that's not enough."

Somehow, government must ensure that economic restructuring doesn't leave many workers out in the cold. That's the second phase of the restructuring and, so far, the Midwest has not learned how to do that.

There is a broad consensus on what government should not do. It shouldn't attempt to change drastically the course of a region's economy. Midwestern cities failed trying to import high-tech companies that had no relation to their industrial base. They had to stick to their strengths.

Chicago, for example, used its strengths as a Midwest financial center to diversify into futures and options trading, says Bill Testa, senior research economist with the Federal Reserve Bank of Chicago. Detroit, which had only a small financial base, had to stay with manufacturing. There's little the state of Michigan could have done to turn Detroit into a copy of Silicon Valley, he says.

"Government needs to look to see how the economy has changed and then change itself to adapt to the new conditions," Mr. Testa says. That means avoiding bad policies as much as finding good ones.

But that strategy doesn't address the thousands of workers who were restructured out of jobs, insists Greg LeRoy, research director for the Midwest Center for Labor Research. "We are far worse off," he says. "Our manufacturing base is way down. The economy is much more fragile." Government, will have to play a central role in making sure workers get jobs, he adds.

However government decides to act, both men can agree on one thing: The old guarantees are gone. That's a fifth lesson: Restructuring doesn't stop.

During most of the 1980s, when plants on the South Side and West Side were slowed or shuttered, Chicagoans could count on the Chicago Board of Trade and its sister institutions to create jobs. Only a third of such ventures succeed. But that doesn't bother Patrick Arbor, chairman of the Board of Trade: "Out of those losses and failures [can] come spectacular successes," he says.

If Pittsburgh's Monongahela River represents the past of the industrial heartland, perhaps the Board of Trade symbolizes its future. "In the 1950s, when I was growing up, nothing happened," Mr. Arbor says. Now, "the world is a more volatile place."

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