Lehigh Preserve Institutional Repository Luxembourg: World Headquarters for the Steel Industry Copeland, Cameron 2008 Find more at https://preserve.lib.lehigh.edu/ This document is brought to you for free and open access by Lehigh Preserve. It has been accepted for inclusion by an authorized administrator of Lehigh Preserve. For more information, please contact [email protected]. LUXEMBOURG: WORLD HEADQUARTERS FOR THE STEEL INDUSTRY Cameron Copeland Introduction The History of Steel in Luxembourg The Grand Duchy of Luxembourg (Luxem- bourg), although one of the smallest coun- Although there is evidence of ironworking tries in the world, has historically played a in Gallo-Roman times circa 500 A.D. (Edwards, disproportionate role in the formation of mod- p. 1), for all intents and purposes the steel indus- ern Europe. It was a charter member of the try’s rich history in Luxembourg took shape Benelux Economic Union, the European Union, in the late nineteenth century. Following the NATO, and the United Nations. The territory inventions of two British industrialists, Henry now called Luxembourg was a prized possession Bessemer and Sidney Gilchrist Thomas in 1855 of various powers in Europe because of its geog- and 1875 respectively, mass production of raphy and natural resources, only gaining its steel became feasible. The Bessemer process, independence in 1890; with a population of developed in Sheffield, England, utilized the 480,000 (2007), it boasts the world’s highest GDP patented Bessemer converter in order to mass- per capita of $87,995. (The World Factbook . .) produce steel from pig-iron by removing impu- Although insignificant in size and area, Luxem- rities using compressed air which was bubbled bourg has been able to maintain its economic through the molten metal. However, the and strategic importance on the European stage. minette1 deposits in southern Luxembourg The purpose of this article is to examine remained untapped by the Bessemer process due how Luxembourg ultimately became the cor- to their high phosphorus content until the nerstone of the world’s largest steel conglomer- ate. In what follows I will provide a short his- 1 tory of the steel industry in Luxembourg along Minette sediment in the Esch and Differdange (southwestern regions of Luxembourg) was typically com- with a description of the evolution of the coun- prised of 30 percent iron ore and large concentrations of try’s steel corporations into what is today phosphorus, making it difficult to produce steel using the ArcelorMittal. original Bessemer process. 33 Figure 1 Global Crude Steel Production Source: Chaudhary, p. 3. Thomas-Gilchrist2 process was developed. These and Social . ,” p. 7) Located adjacent to the innovations led to the tremendous growth of the iron- and coal-rich terrain of the Lorraine global steel industry in the late nineteenth region, Luxembourg was the ideal place to and (as shown in Figure 1) twentieth centuries, develop steel production. Following its acces- measured by compound aggregate growth rates sion into the Zollverein3, Germany provided (CAGR). Luxembourg with both much needed invest- The population in Luxembourg grew from ment funds and a primary outlet for its steel 211,088 in 1890 to 259,891 in 1910 and became products. more highly concentrated in the City of Luxem- Arcelor’s historic lineage may be traced bourg and the Canton of Esch; the mining back to its origins with the Forges d’Eich-Le and steel area employed 45 percent of the total Gallais and Metz et Cie in 1838 (see Table 1). The population before the First World War as com- growth of the Luxembourg steel industry, over pared with only 26 percent in 1880. (“Economic 170 years in the making, has been a story of growth and decline, merger and acquisition, 2The key to phosphorus removal in the Bessemer con- reaching its zenith in 2006 with the merger of verter was the use of a lining composed of a strong basic sub- Arcelor and Mittal Steel. The same tumul- stance (such as burned limestone) with which the phos- tuous existence is echoed in France and Spain phorus could combine and be eliminated in slag. With the whose steel companies, also included in Table aid of his cousin, Percy Gilchrist, Thomas was able to 1, combined with Arbed much later to form experiment and perfect his product in 1875. (“Thomas, Sidney . .”) Arcelor. 3The German customs union was established by the In the years immediately preceding the majority of German states in 1834 to eliminate internal cus- First World War, the steel industry in Luxem- toms barriers while upholding protectionist tariff regimes bourg went through its first phase of eco- against external parties. Luxembourg joined in nomic consolidation with the merger of 1842 and benefited from the economic ties until 1918 when the Allied powers required that Luxembourg dissolve its Fourneaux, Sarrebuck, and d’Eich companies affiliation. into Arbed in 1911. Arbed became one of the 34 Table 1 ArcelorMittal Merger Timeline first truly vertically integrated steel companies, lowing the occupation that began in 1940. controlling ore, coke, and rolling mills. By 1913 This increase was short-lived, however, as the Luxembourg was producing more than one mil- Allied invasion and bombing campaigns deci- lion metric tons of steel annually, of which mated the German military machine in the later nearly 70 percent went directly to Germany. days of the war. Fortunately for Luxembourg’s (“Economic and Social . ,” p. 8) economy, the restrictions of the post-war con- Following WWI the Allies mandated that struction period following World War I were not Luxembourg withdraw from the Zollverein; and, repeated; and efforts such as the Marshall Plan in the absence of German investment, the led to a significant investment of $559 million steel industry in the region fell upon hard times. in the country and a rapid recovery. (Bailey, The inter-war period was categorized by slug- p. 205) The period following the war from gish growth in the global economy, further 1945 until 1975 saw annual steel production compounding the region’s economic and social in Luxembourg grow from less than one million hardship. Table 1 illustrates how this confluence to over six million metric tons. This dramatic of events impacted steel production. The effects increase in production was at least in part due cascaded through to the steel industry where to the rapid growth in technical productivity4 as annual output grew at a compound aggregate measured by the Federation of Luxembourg growth rate of only 2 percent and consequently Steel Industries. Steelmaking productivity more led to social and economic unrest during the than doubled in conjunction with the rapid period. general post-war growth from 1950 to 1974. The industry’s fortunes in Luxembourg (“Economic and Social . ,” p. 12) were revived briefly during the Second World War as a dramatic increase in production was 4Measured in tons per annum per worker and reflecting required in support of Germany’s war effort fol- increases in efficiency and new methods of producing steel. 35 Table 2 Luxembourg Steel Plan Expenditures Budgetary Expenditures Made by the State under the “Steel Plan” between 1975 and 1987 Unit: million euros 1975–1982 1983–1987 1975–1987 A. Investment Aid (Ordinary capital subsidies, extraordinary capital subsidies, special interest rate reductions, and other subsidies) 70.6 63.4 134.0 B. Financial Restructuring (Convertible bond and share subscriptions, acquisition of Sidmar company shares, special and temporary aid) – 393.0 393.0 C. Social Aid (Professional re-training, re-employment benefits, early retirement, and special disability scheme) 147.1 307.6 454.7 D. Tariff Aid 9.6 1.7 11.3 Total 227.3 765.7 993.0 Source: “Economic and Social . ,” p. 14. The marked growth in both raw produc- This period of economic rationalization tion and productivity during the aforemen- continued on a larger scale across all of Luxem- tioned period reversed course from 1975–1985 bourg’s steelmakers. Ultimately, in the late as the world reeled from the first and second oil 1970s Arbed was the sole surviving steelmaker crises. The steel industry in particular suf- due primarily to the direct intervention of the fered from a serious worldwide demand and sup- state. The Societe Nationale de Credit et d’In- ply imbalance as severe overproduction placed vestissement,6 a long-time national steel indus- downward pressure on prices. Beginning in try investor, increased its holdings to 42.9 1975, Luxembourg responded rapidly to the eco- percent of Arbed’s total capital in order to nomic downturn in an effort to stem any poten- stave off the company’s bankruptcy. The magni- tial job losses. Table 2 identifies the cumula- tude of the government intervention underlines tive expenditures made under the “steel plan”5 the relative importance of the industry as Lux- including investment aid, financial restructur- embourg’s principal employer. ing, and social support. The most significant aid package prioritized several new social programs A National and Regional Champion including legislation with the express purpose in the EU of providing for early retirement of steel work- ers. Despite the injection of the equivalent of Luxembourg’s rationale in maintaining a one billion euros, stemming the increase in partnership between government and private unemployment was impossible; and the num- enterprise can be described by the doctrine of 7 ber of registered unemployed increased economic nationalism. It follows that in smaller markedly from 1974 to 1984 as more than 6Founded in 1978 as a federal organization, the Soci- 14,800 steelworkers left the industry. (“Eco- ete Nationale de Credit et d’Investissement provides financ- nomic and Social . ,” p. 14) ing through grants, loans, credit facilities, and equity invest- ments in public and private companies located in 5The “steel plan” was a series of emergency measures Luxembourg.