Why is America's steel industry in such a sorry state?

Poor management, inefficient work rules, runaway imports, outrageous energy costs, low prices, expensive obligations to retirees, skeptical landers and rapidly changing technology have all played a role. But the collective impact is undeniable: In little more than three years, 16 firms, including Cleveland LTV Corp., have sought bankruptcy protection. Since last spring, profits at even the best-run firms have largely melted into pools of red ink; LTV lost $351 million in the last quarter alone. The mini-mills that once seemed to be steel's new wave now look almost as vulnerable as the dinosaurs in this historically cyclical industry.

Since steel is an economic and military necessity, America needs a healthy industry. And in our system, that's largely the responsibility of individual steelmakers. They have to be intelligently managed, flexible, able to see technological change before it overwhelms them. Companies that can't or won't change will fail. And yet, it's not unreasonable for government to help such a vital enterprise negotiate a market shaped by forces that bear little resemblance to economic theory.

The Bush administration is said to be studying how best to assist steel. And a bipartisan group in the House of Representatives has offered a set of proposals, many of them rooted in ideas put forward by industry leaders and the United Steel Workers of America. While specifics of the legislation, whose co-sponsors include Cleveland-area Democrats Dennis J. Kucinich, Stephanie Tubbs Jones and Sherrod Brown, may be a bit dubious, they do pinpoint areas that need attention: foreign competition, ``legacy costs,'' consolidation and capital.

Ask most steelmakers and their allies to identify the industry's No. 1 problem and chances are they'll finger the glut of low-priced foreign steel that flooded this country last year. But the import crush is not some foreign plot. A strong U.S. dollar, while good for the overall economy, makes imports relatively cheaper and more desirable to cost-conscious steel users. Even in the best of times, American steel makers cannot meet domestic demand. Industry officials concede that about a quarter of the steel used in this country will always come from abroad, much of it slab that's then finished by American steel firms.

Still, American steel firms need some respite from bargain-basement competition. The question is how to give it to them, especially since the world Trade Organization has rejected America's anti-dumping laws. Perhaps the administration at least could give American producers the ``anti-surge'' warnings that NAFTA partners Mexico and Canada provide their steelmakers by constantly monitoring imports.

U.S. steelmakers proudly point to billions invested in modernization since the late 1970s. America today makes as much steel with a third as many workers. But shrinking the work force meant early retirement for thousands of empoloyees; LTV's integrated steel operations, for example, support 12,000 active workers and 72,000 retirees. Many established steel firms thus face enormous ``legacy costs,'' mostly for retiree health care, that add an estimated $15 to $20 to the price of each ton. It's a burden not shared by domestic upstarts or by foreign competitors whose governments pay for health care.

The House bill proposes a surcharge on every ton of steel sold in the United States to help cover retiree health costs. A similar program operates in the coal industry. Spreading the burden of legacy costs might speed the consolidation that many think the steel industry desperately needs. Treasury Secretary Paul O'Neill, who led a troubled aluminum industry back to profitability while at Alcoa, has signaled that any long-range fix for steel probably will require some global reduction in capacity that pushes up prices. Retrenchment may cost some American firms, but their workers and retirees should not be punished in the process.

Finally, steel may be on the verge of technological quantum leaps. But they won't be cheap, and already many banks are understandably leery of investing in such a dicey industry. Even a federal program that currently guarantees 85 percent of a loan has attracted so few takers that the Bush budget suggests cancelling it. Some suggest that governments or pension funds could step in as financiers. But before heading down that risky road, let's see whether help on import competition and legacy costs encourages private lenders to take another look at steel.

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