Reimagining American Cities: RealEcon Visits Western Pennsylvania and New York

The RealEcon team at the Council on Foreign Relations (CFR) went back on the road in July to continue our listening tour, an effort to better understand 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 most recent trip focused on several industrial cities in western Pennsylvania and New York.

The weeklong 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 talk to managers and workers in the steel and robotics industries, biomedical research, international logistics, light manufacturing, and many other sectors. We also met with city administrators and economic development officials, university professors, and local journalists.

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

In the 1970s and 1980s, many steel mills and other manufacturers in the areas we visited closed or moved to other parts of the United States or the world, causing job loss, population declines, increased poverty, and an array of economic and social challenges. At one point, Erie was the poorest zip code in the country. Buffalo lost one hundred thousand of its residents in the 1970s, and 27 percent of city residents were considered poor in 2007. Many questioned whether these cities would ever recover.

The causes of decline in these areas have long been analyzed and debated. We posed this question to the people we met and heard various answers, including poor management decisions, the role of unions, and globalization. In the steel industry, we heard that management failed to adapt quickly enough to technological change and did not always make wise business decisions. For example, at one point, Bethlehem was using open hearth furnaces that took six to ten hours to make a “heat” of steel, when the basic oxygen process was available and could make a heat in an hour.

The Northeast has a history 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 became stronger, higher wages and pensions became unsustainable. A long steel strike in 1959 and the decision by steel producers to ration steel to drive up prices exacerbated the situation, he said, causing domestic consumers to look overseas for steel.

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, as wages, pensions, and safety and environmental regulations in those countries were much lower. More recently, although the North Atlantic Free Trade Agreement (NAFTA) as written did not hurt the U.S. industry because Mexico was not a competitor in steel, other countries used NAFTA to bring steel to Mexico and then dump it in United States.

Although some traces are still visible, the cities we visited in July looked very different from their former industrial heyday or days of despair. Strategic investments in technology, medical research, and education have helped turn many of these places around. In Pittsburgh, a combination of federal and local funding—including from the Heinz, Hillman, Mellon, and other foundations—has gone into brownfield cleanup, advanced robotics manufacturing, biomedical research and manufacturing, and education, forming clusters of innovation and knowledge-sharing. Similarly, in Erie, there are numerous development agencies investing in downtown renewal, while Federal Opportunity Zones and private investment are also playing an important role in revitalizing the city. In Buffalo, historic federal and state tax breaks have helped the city get back on its feet.

Universities are also key. In Pittsburgh, Carnegie Mellon University (CMU), the University of Pittsburgh, and Duquesne University made a conscious effort to partner with the public and private sectors to reinvent the city through innovation and knowledge centers that perform cutting-edge research. University administrations laid out strategies to rebuild the former steel mill sites and provided the talent needed to fuel key sectors. A similar dynamic is happening in the other cities we visited. An initiative known as Ignite Erie has spurred university involvement in local economic development in that city by convening 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 services sectors are important elements of economic transformation, throughout the trip we also saw the crucial role that manufacturing still plays in the economy. Case in point: the Cleveland Cliffs Butler Works, where a sprawling, sophisticated—and noisy—production line churns out 0.4 million net tons of raw steel every year, mainly for electrical transformers on telephone poles and at power stations. The workers there made an impassioned case that services alone cannot keep an economy running; being able to make things and maintain value-added production processes is vital to the economy and national security. The steel produced in Butler, for example, transmits electricity to homes and businesses throughout the United States. They noted that building manufacturing capabilities requires large lead times, and that the technical and practical knowledge of the mills is built up over generations. Most people we met at the Butler Works had worked there for decades, as had their fathers and grandfathers, and it was clear how important the mill remains to that community.

All along our tour, the cities and regions we visited are clearly making a lot of progress but still face many challenges. Human capital is essential for transformation, but companies often struggle to find qualified workers to fill open positions. While Pittsburgh’s research universities attract talent from all over the world, the city has found it difficult to get students to stay, in part because of restrictive visa requirements and quotas. Shenango Valley business leaders expressed frustration at not having a qualified and motivated workforce for manufacturing jobs, arguing that many people today are uninterested in the demanding work or cannot pass a drug test or background check. The challenge of getting young people to stay in the local area and attracting new talent is a theme we heard throughout our trip.

Some companies have found creative ways to fill positions. For example, at Gecko Robotics, a technology company in Pittsburgh that uses small mobile robots to assess the condition of key infrastructure assets, 40 percent of the workforce does not have a four-year college degree, and many workers who once climbed boilers and bridges to collect data with paper and pencil now sit behind computers interpreting data collected by robots.

Competing internationally can also be a challenge. One complaint we heard frequently was that high wages and environmental standards have disadvantaged American companies trying to compete with countries that do not maintain those standards. Many people we met wanted the federal government to level the international playing field, through tariffs if necessary. Others suggested balancing our own standards at home with international realities, including adjusting what was described as “heavy-handed” environmental regulation.

We also heard that, even when the government does step in, it often does so in inconsistent or ineffective ways. Tariffs on steel imports from certain countries have been circumvented by transshipment through friendly countries like Mexico. Despite being under U.S. sanctions, Iranian and Russian steel manages to make its way to the United States, while Chinese steel is often shipped to other countries, minimally transformed there, and then sold to the United States as a product of that third country. One business leader in the Shenango Valley complained that while he has hired lawyers in Washington to address unfair practices like those, it is a constant game of whack-a-mole.

On the banks of the Monongahela River in Pittsburgh sits a former steel mill site known as Mill 19. The skeleton of the old mill remains, but the roof is lined with solar panels, and inside, as CMU describes, there is a workspace that brings together innovators and industrial 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 innovation growing from an industrial past: not shunning the past but reinventing it to build back stronger.