There is not a part of the country where people are not feeling the dramatic changes as a result of globalization. The question is, where does Canada fit?”
PERRIN BEATTY, PRESIDENT, CANADIAN MANUFACTURERS & EXPORTERS
WALKING DOWN Barton Street in Hamilton’s east end for the first time is like stepping into an old Star Trek episode in which the crew is beamed down to a lost civilization. Its once impressive structures are eerily vacant, slowly mouldering under the weight of eons of neglect. Everything appears frozen in time, as if the unsuspecting population had no warning before disaster struck. Once-luminous neon signs hang disconsolately, rusting and faded, while the door to an abandoned barbershop swings open. At one shoe store, the smell of mould is so strong it penetrates the glass storefront. The walls of the half-empty display cases are peeling, and the shoes, scattered at unnatural angles or hanging perilously from half-dislodged hooks, are covered in dust and discoloured by the sun. The only ostensible signs of modernity are fast-cash depots, numerous Tim Hortons shops and a few down-at-heel bargain-basement stores, one fittingly dubbed the “Last Chance Outlet.”
It wasn’t always like this. Barton Street used to be the swanky shopping district for the well-paid blue-collar workers who found jobs in the hundreds of factories that sprang up along the shores of Hamilton Harbour. At first a beachhead for textile mills and foundries started by waves of new immigrants, the border town with the best port on Lake Ontario soon became the capital of the country’s steel industry and a favoured spot for multinationals looking to set up branch plants in Canada.
By the 1950s, Hamilton was a boomtown. The heaving blast furnaces and black-plumed smokestacks were signature signs of progress that formed the bedrock of a thriving industrial hub. Railway freight cars criss-crossed the city’s east end, and the port hummed as factories churned out everything from agricultural equipment and household appliances to Studebaker cars and Life Savers candies. During the halcyon days, Steel Town, as it became known, was home to corporate heavyweights like Procter & Gamble, Westinghouse and General Electric and was the country’s uncontested manufacturing and industrial capital. It was a proud, can-do kind of place.
But in less than a generation, the steely foundation that girded the city to the country’s industrial engine seems to have crumbled like cardboard. The once-thriving east end looks more like a “war zone,” says Rolf Gerstenberger, a veteran steelworker who has watched as factory after factory closed up shop, their rusted-out, soot-stained remnants the only clue to the city’s former glory days. The gradual decline that began in the early 1980s continues inexorably to this day. In recent years, Camco, one of Canada’s few remaining appliance makers, Slater Steel and jeans manufacturer Levi Strauss & Co. have all closed their plants, shedding thousands of jobs.
“When I started thirty-two years ago, it was the industrial heartland,” recalls Gerstenberger. “There were probably twenty factories with over a thousand people in each one — Stelco, Dofasco, Firestone, Westinghouse, International Harvester, Otis Elevator. The kids just went from one factory to the other until they found one they liked.”
“Well, that is all gone,” he says. “I don’t know what the kids are going to do — McDonald’s or something — because there’s no place else to go.”
Even the mighty steel industry, the city’s heaving heart and last hope, is a hollowed-out shell of its former self. At one time, Stelco and Dofasco, the two big steel companies, employed more than thirty thousand people in their hulking steelworks overlooking the bay. But in the past two decades, financial crises and downsizing have whittled the workforce down to twelve thousand. In 2004, Stelco filed for bankruptcy protection and, after a $100 million provincial bailout, emerged much downsized and largely owned by New York hedge funds. Dofasco now has European minders, the concession prize in a high-stakes tug-of-war for global steel domination.
Although the two companies were very different — one profitable, one not — neither could avoid the whirling juggernaut that has laid waste to so much of Hamilton: globalization. In its latest incarnation it is convulsing the steel industry through a combination of massive new capacity in low-cost countries like Russia, Brazil and China and the creation for the first time of global behemoths in the historically fragmented steel sector. The new paradigm, which redefines the winners and losers in the industry, is dictated by size, low cost and global scope. On each count, the Canadians came up short.
China alone now represents more than a quarter of worldwide steel capacity, adding the equivalent of Canada’s entire production every year.29 This unprecedented ramp-up coincides with the mega-mergers of several steel industry leaders. The Netherlands-registered Mittal Steel, headed up by Indian-born billionaire Lakshmi Mittal, emerged from obscurity to become the industry kingmaker, acquiring U.S. steel assets before making a stunning us$38 billion hostile bid for its number two rival, Europe’s Arcelor SA. The merged powerhouse, Arcelor Mittal, is far and away the world’s largest, representing 10 per cent of global steel production. As part of the deal, Mittal was to offload Dofasco, which was in the midst of being acquired by Arcelor, to a rival contender for the Hamilton company, ThyssenKrupp AG. At the time of writing, however, the sale was being blocked by Arcelor shareholders and Dofasco’s fate remained unclear.
It’s a stunning reversal of fortune for the two Canadian industrial icons that enjoyed a privileged position supplying steel to the United States, the world’s largest automotive market. The two were arguably well positioned to be players instead of pawns in the global steel shakeout, yet both failed to capitalize on their advantage. While Dofasco carved out a lucrative niche as a value-added steel producer, it, along with its more commodity-oriented cousin, Stelco, never dared venture far from home. Other than Dofasco’s minor incursions into the United States and Mexico, the two were decidedly domestic, each rolling out five million tonnes of steel annually, a drop in the bucket compared with Mittal’s 115 million tonnes, furnished by furnaces from Indonesia to Kazakhstan.
“If you were going to name a Canadian national champion, the steel industry would definitely be one. It is one of the few industries in which Canadian producers, taken together, were actually stronger than American producers,” says Peter Warrian, a senior research fellow at the University of Toronto’s Munk Centre and an expert on the Canadian steel industry. “But they didn’t conceive of anything beyond the North American market. It was a failure of imagination.”
It’s not as though Canadians didn’t have the chance to expand abroad. In the 1980s, Stelco turned down a sweetheart deal to buy a bankrupt Chinese steel company, Maanshan, for next to nothing. “They thought it was too far away and they would have had to manage it,” said a person familiar with the deal. Maanshan has since been restructured and is the world’s twenty-sixth-largest steel producer, with a production capacity nearly double that of Stelco. “They could have bought Maanshan, revived their technology division and been one of the world leaders in steel production if they’d kept going,” said the source. “We had the world’s best steel industry from the point of view of technology and quality. Why is it a bunch of guys from Korea or India ended up being the world leaders?”
Brazilian manufacturers, who have yet to get their domestic automotive industry off the ground, definitely recognized Canada’s competitive advantages. Considered among the world’s most antiquated steel industries less than two decades ago, Brazilian producers are now among the most modern, led by the likes of Gerdau sa. That company’s first foray outside of Brazil was into Canada, where it acquired a steel mill in Cambridge, Ontario, which was followed by another in Selkirk, Manitoba, in the late 1980s. Now with operations in seven countries, Gerdau has gone from being the world’s 54th-largest steel company in 1997 to 14th in 2006, surpassing 51st-placed Stelco. In Canada, its Gerdau AmeriSteel subsidiary ranks as the country’s 75th-largest company. Stelco is 131st.30
The decision to stay home, however, is costing more than just a few rungs in the corporate rankings. The failure to retool Hamilton’s fading industrial and manufacturing muscle is reflected in the lifeless shop windows along Barton Street. A metaphor not only for the dwindling fortunes of Steel Town but for much of Canada, the strip is a relic of times past, an almost miraculous effort to stave off decades of changing tastes and trends.