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Steel Twins

May 23, 2012 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Innovation, International Trade and Finance, Labor, Regulation, Thinking Economically, Uncategorized • 258 Views    No Comments

What happens when a parent of twins makes them compete? And what if the better twin is told that he has to remain ahead of his slower sibling? For twin steel factories, one in Burns Harbor, Indiana and the other in Gent, Belgium, the result is more productivity.

Barely functioning, Burns Harbor was in terrible condition. Meanwhile, the Belgian plant, having replaced many of its people with machinery because of sky high wages and benefits, was a model of productivity. So, when ArcelorMittal, Gent’s owner, bought Burns Harbor, they sent its engineers and managers to Belgium and said, “Do as the Belgians do.” Soon the machines arrived, the layoffs, and Burns Harbor was transformed.

Named Gent’s “twin,” Burns Harbor was told to equal Gent’s 900 tons of steel per person per year. And Gent knew that it had to stay ahead of Burns Harbor. Now, both are models of productivity.

Output numbers say it all. The  man hours per ton for Gent is 1.25 and Burns Harbor, 1.32. Meanwhile, the US average is 2.0.

Looking at Burns Harbor, I keep thinking of the visible cost and the invisible benefit. Yes, it is obvious that many people were laid off and replaced by machines at Burns Harbor. It is tougher to see that more productivity at Burns Harbor fuels economic growth.

To read the fascinating details of twinning, this WSJ article was excellent. Also, you might want to ponder how steel tariffs, described by Bloomberg here, might impact US productivity.

 

 

 

 

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