Legacy from the past could help save Port Kembla steel plant

Competitive pressure on Australia's manufacturing sector has been unrelenting and severe, particularly for steel producer BlueScope, which is battling for survival in a globalised industry awash with excess capacity.

Unions and management at the company's Port Kembla steel plant have been negotiating radical changes directed at making it more internationally competitive in a bid to keep it operating. If adopted, there will be 500 job losses, some employee entitlements reduced and a three year wage freeze. Combined with changes in government charges and with supplier networks, the operation should be able to reduce operating costs by hundreds of millions of dollars over the next three years.

Should the potential closure of this plant be embraced as an inevitable consequence of "progress", or should the proposed restructuring agreement be supported as a basis for nurturing economic renewal?

The facts are not comforting. The steel industry has been awash with excess capacity for decades. First Japan, then Korea and most recently India, Brazil and China have each – at different times – taken on traditional suppliers and succeeded spectacularly. With the serious slowdown in Chinese growth, the fragile situation of recent years has been become critical.

Under these circumstances change is inevitable, the form it takes is not.

In the early 1980s there was a huge shake-out in the steel sector worldwide flowing from crisis in profitability consequent on excess capacity of that time. In the US, one of the key responses was for employers to demand, and unions to accept, huge cuts in labour standards. This involved things like reductions in annual leave by at least two weeks per year and pay cuts of up to 25 per cent. This concession bargaining merely delayed large-scale scrapping of capacity – but the erosion of labour standards endured.

Australia reacted very differently. After decades of often highly antagonistic struggle, unions and employers embraced a dramatic agenda of modernisation and change. At the core of this renewal program was active collaboration of business, organised labour and government. Large numbers of jobs were lost – but the industry was renewed. And when plants had to be close, they did so in orderly process over many years. The closures were used as platforms for economic diversification in the later 1980s and 1990s. And the wider co-operative policy mix created one of the strongest regimes of employment growth in the OECD region at the time.

In the 1990s the plant at Port Kembla enjoyed an international reputation for producing its grade of output to high-quality standards at a competitive price. If the US model of adjustment had been followed in the 1980s this opportunity would have been lost.

This is the question for today: how do we handle the legacy that exists in the Port Kembla plant? In the 1980s Australia showed that collaborative renewal for the future could deliver success in a hostile world market.

The challenge is not to repeat some formula from some mythical golden age – but to learn lessons about how best to adapt to change.

Last week, Malcolm Turnbull showed for the first time in decades that there is a preparedness for all key stakeholders – employers, unions, non-government organisations and senior political leaders – to reflect on what they agree on, and not just harp over differences. If the BlueScope Agreement is symptomatic of change of this nature, and it operates as part of wider collaborative approach, it has every chance of working. Cuts in employment conditions alone, however, will achieve little.

It is fashionable these days to say the future of work is in the services sector and white collar jobs. But economic development comes from an economy with a variety of dynamic sectors. The steel industry will only be a small contributor to "jobs of the future" – but it is a sector that has important inter-industry links with construction and what remains of manufacturing. And as was shown in the 1990s it was an important exporter in its own right.

It is easy to let legacies of the past wither and die. It is far harder to work with the best of them and use them as resources for navigating the future. Unions and managers at BlueScope's Port Kembla plant are creatively struggling with the latter approach. It is to be hoped our political and business leaders will build on this opportunity and not let it pass.

John Buchanan is professor of business analytics at the University of Sydney Business School. This article was first published in the Sydney Morning Herald.