Top 50: Region has seen steady shift away from manufacturing
March 18, 2008 4:00 AM
Darrell Sapp / Post-Gazette
Heavy manufacturing, particularly steel, dominated the region for most of the 20th century.
Bob Donaldson / Post-Gazette
A high concentration of seniors has helped to make health care one of the region's top industries in the early part of the 21st century.
By Joyce Gannon Pittsburgh Post-Gazette
Asked to summarize the findings of a study on how the Pittsburgh region might evolve from a blue-collar economy dominated by heavy industry to one that features a mix of service, technology and less traditional manufacturing, a planning association executive put it this way:
"The growth industries ... we can see or envisage now are different. ... An industrial area with strong roots in the past inevitably faces a period of massive transition from its traditional pattern of specialization to a kind of economy in which a diversity of lighter industries, automation, communications, research, education, capacity to acquire new skills, and a broader conception of the amenities of community life play a crucial role. The Pittsburgh region ... is confronted with a particularly challenging problem of adjustment."
Those words from Streuby Drumm, president of the Pittsburgh Regional Planning Association, didn't come in the mid-1980s as the city and adjacent counties were reeling from the collapse of the steel industry. Mr. Drumm penned them for a 1963 report, "Region in Transition," which decades before the decline of steel warned that it was imprudent to rely on a handful of industries to sustain growth.
To outsiders in the early 1960s, Pittsburgh probably looked like other metropolitan areas thriving in the post-World War II boom. Construction of new suburban housing developments was flourishing, schools were being built to accommodate the children of those home buyers, and the city ranked third behind New York and Chicago for the number of Fortune 500 headquarters based here. Among them: U.S. Steel, Alcoa, Koppers, PPG, Gulf Oil and even five-and-dime chain G.C. Murphy, which was based in nearby McKeesport.
But some planners involved in the "Region in Transition" study, funded by the state and the Ford Foundation, realized heavy manufacturing's dominance may have already peaked.
During its first century of existence, from the 1750s until the Civil War, Pittsburgh was a frontier post and trading center with a large agricultural base. Then in the mid-1800s, the Pennsylvania Railroad's main line connected Philadelphia and Pittsburgh and industrialization took off. From the 1850s until 1900, in fact, Pittsburgh grew faster than the nation as a whole because of early investments here in glass, steel, mining and oil.
World War II enhanced the region's reliance on those industries, especially steel, as the government expected local mills to rapidly turn out what was needed for military operations.
"World War II made us even more concentrated," said Christopher Briem, regional economist at the University of Pittsburgh's Center for Social and Urban Research. "We were the place to make all the steel that had to be made. So we were trapped in the same model as before."
By 1960, the population was 2.5 million in the six-county region, but already was growing more slowly than the nation's, the regional study said. Employment in coal mining, one of the region's growth industries in the late 19th century, had dropped from 100,000 workers in 1920 to about 13,500 in 1960 as alternative fuels emerged and demand shrivelled.
But while planners and economists may have recognized as far back as the late 1950s that the region's competitive edge in old manufacturing was waning, "that message was hard for people to take," Mr. Briem said. "In the American context, there's not an easy way to push a button and have another industry. In 1960, even if people knew steel wouldn't always be dominant, there was no way to make us something else."
By the time U.S. Steel, LTV Corp. (parent of Jones & Laughlin Steel), Crucible Steel and others began shuttering operations up and down the rivers in the 1980s, leaving thousands unemployed, "it was just time to survive, to hang on by your teeth," said Mr. Briem.
Another blow hit the region in 1984 when Chevron acquired Gulf Oil and thousands more were laid off or left the region. And other corporate stalwarts -- including Koppers, Alcoa and Westinghouse -- drastically reduced their operations here in the 1980s and 1990s.
In the decades since, while manufacturing hasn't entirely disappeared from the local landscape, job growth has come from a new set of industries led by health care, professional services, financial services and education.
The emergence of the University of Pittsburgh Medical Center as the largest employer in the region doesn't surprise economists.
While the local population is shrinking, the region is home to a high concentration of senior citizens who demand "more health care per person," said Harold Miller, president of Future Strategies LLC and adjunct professor of public policy and management at Carnegie Mellon University.
UPMC's growth to 44,000 workers has been bolstered by acquisitions of other local facilities including, most recently, Mercy Hospital of Pittsburgh, and its international reach to locales such as Ireland and Italy. Because of its highly regarded academic medical center, UPMC will continue to generate jobs not necessarily tied to population trends, Mr. Miller said.
He does not expect job growth in sectors such as retail and personal services such as barbers, hairdressers and dry cleaners because they are driven primarily by population spikes.
"Go to Phoenix, or Florida , and you'll see huge growth in those areas."
But services likely to provide future jobs in the region, he said, include professional businesses such as law, architectural and accounting firms. Downtown-based law firms Reed Smith and K&L Gates, for instance, have added hundreds to their ranks through mergers. "This is an affordable place to live which is attractive to those firms."
And the Fortune 500 companies still in place now contract out many of those jobs as well as advertising and marketing that were formerly done in-house.
Mr. Miller remains bullish on manufacturing because of recent expansions at Medrad, a medical device maker, and Westinghouse Electric, which is hiring thousands to complete contracts for nuclear power plants in China. Even an old steel facility, U.S. Steel's Clairton coke works, is poised for a $1 billion upgrade that is projected to provide jobs for 600 construction workers.
Financial services is also a growth sector for the region, said Norman Robertson, economic adviser to Smithfield Trust Co. and former chief economist for Mellon Bank.
The Bank of New York Mellon, for instance, pledged to create between 1,000 and 2,000 new jobs in the area following the merger of the New York entity with Pittsburgh's historic Mellon Bank. And PNC Financial Services Group, the city's largest bank, said recently it had stepped up college recruiting and was trying to fill several hundred open positions.
Mr. Robertson also sees potential growth from small businesses "whether they are in computer servicing, advertising, marketing or consulting."
"They don't add thousands of jobs, maybe 10 here, 40 here, and 50 there but I think that's where the growth is going to come from."
Some observers also look to the region's rich research resources -- namely Carnegie Mellon and Pitt -- to help generate new businesses.
Frank Demmler, adjunct professor of entrepreneurship at Carnegie Mellon and director of the entrepreneurial executives team at Innovation Works, expects the boom at UPMC to trickle down to small companies and startups that develop medical technology and that provide health care services, especially home health care for the aging population.
"We have the opportunity because of our demographics and our technology," he said.
Among the firms already growing in that sector, he said, are Respironics, which makes sleep apnea devices, and Renal Solutions, which provides home-based dialysis systems.
There are also a host of promising life sciences startups engaged in developing treatments for cancer and other diseases, such as Precision Therapeutics, he said. While Renal and Respironics are being acquired by European firms, they plan to stay and expand in Pittsburgh.
Another sector with a steady stream of startups is information technology, Mr. Demmler said. Two that made it big here, Fore Systems and FreeMarkets, both eventually were acquired but maintain significant local employment.
"The point is we have a history of one, big thing: steel and coal before that," said Mr. Briem. "The future won't be one big thing like the past. No industry will last as long as steel did, period, let alone in one place. We have to get in the mode of not looking for that one, big, next thing.
"I'll bet we'll be surprised at what's growing in 20 years. It may be something we haven't spent time growing."