Friday, April 15, 2016

The Law of Unintended Consequences as Illustrated by the Story of U.S. Steel in Duluth

99 years ago this month U.S. Steel announced the building of a steel plant in Duluth. It was not just any old steel plant. According to the Duluth News Tribune is was going to be a "MONSTER PLANT IN DULUTH." Along with the plant came the promise of prosperity for this small town that was destined to become the largest inland port in the world. Or busiest. Or something like that.

That the Iron Range was rich with iron ore was unquestioned. Getting the ore to market was being handled by railroads to the port in Duluth, and by ore ships to Cleveland on Lake Erie and on to the steel plants in Pittsburgh that would produce the girders to construct skyscrapers in New York.

But Minnesota politicians wanted a bigger share of the mining profit pie and a steel plant here would be just the ticket. There would be still more Minnesota jobs and wealth. To achieve this they decided to incentivize the building of a steel plant within the state's borders. How did the politicians induce this investment? They passed legislation to heavily tax the ore being shipped out, with one caveat. Any company that builds a plant in Minnesota would be exempt from this tonnage tax.

U.S. Steel, the nation's largest steel producer, had little interest in paying the these newly imposed tonnage taxes and was thus coerced into opening a plant here on the shores of the St. Louis River in Duluth. The plant was begun in earnest two years later and produced its first steel six years later.

Duluth did indeed grow. With a population of 52,000 in 1900, the new jobs had the desired effect, doubling the size of the city by the end of the Roaring 20's. Northern Minnesota mines would go on to produce heroic quantities of ore that went into as much as 90 percent of our war arsenal during World War II, a major contribution that indeed helped us win the war for the Allies.

But like many things in life, be careful what you wish for.

There is a scene near the end of Charlie Wilson's War in which Gust (Phillip Seymour Hoffman) tells a parable to Congressman Wilson (Tom Hanks) about a boy who gets a horse as a birthday gift. It's a great story about the law of unintended consequences.

Gust Avrakotos: There's a little boy and on his 14th birthday he gets a horse... and everybody in the village says, "how wonderful. The boy got a horse" And the Zen master says, "we'll see." Two years later, the boy falls off the horse, breaks his leg, and everyone in the village says, "How terrible." And the Zen master says, "We'll see." Then, a war breaks out and all the young men have to go off and fight... except the boy can't because his leg's all messed up, and everybody in the village says, "How wonderful."

Charlie Wilson: Now the Zen master says, "We'll see."

In the film, the application pertained to the arming and training of the Mujahideen to defeat the Russians in the 1980s. This training and these self-same weapons would later be a thorn in our own sides, as history has born out. (You can read more about the law of unintended consequences here.)

Getting back to our story... That U.S. Steel plant did eventually leave town. Times changed. And a lot of people were left by the wayside, as well as a very large quantity of spillage, debris and other aftereffects of turning ore into steel were left in our river.

At the time, many of the toxins that industry left in the nation's waterways or landfills were quite acceptable, as in legal. But so was slavery legal at one time. If we've earned anything at all from the Dred Scott decision, legal does not make a thing right.

Cleaning up the mess left behind when the steel plant left has been more than a mess. It's been an expensive mess. This section of the St. Louis River is now a federal Superfund site listed on the Federal National Priorities List, and costing millions upon millions of dollars to clean up. [EdNote: U.S. Steel has assumed most of the financial burden for this cleanup and a critical infusion of federal Great Lakes Legacy Act funds are speeding up the cleanup of contaminated sediments in Spirit Lake.]

There's another negative side effect of this U.S. Steel story. Because of the expensive and disastrous outcome here, the pendulum has swung so far the other way that it may never be possible to create jobs through the mining of natural resources again, for fear of another Love Canal... or U.S. Steel Superfund mess.

What will happen next? As the Zen masters says, "We'll see."

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Impetus for this article came from a story at zenithcity.com and the One River, Many Stories project.

1 comment:

Pedro H. Albuquerque said...

Nice story Ed, interesting information that I can add to my international trade classes. Cheers, Pedro