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| The ‘invisible hand’ won’t save the British steel industry. State aid can | |
| (35 minutes later) | |
| The announcement by Tata Steel that it intends to sell off its remaining UK steel operation is a body blow to the industry. The hope was that, with the promise of firm government commitment to the site, Tata would keep open the Port Talbot plant that employs 4,000 people, and supports 10,000 more jobs. The worst-case scenario of immediate closure has not been realised, and the focus now is on persuading Tata to provide the time needed for a buyer to be found. | The announcement by Tata Steel that it intends to sell off its remaining UK steel operation is a body blow to the industry. The hope was that, with the promise of firm government commitment to the site, Tata would keep open the Port Talbot plant that employs 4,000 people, and supports 10,000 more jobs. The worst-case scenario of immediate closure has not been realised, and the focus now is on persuading Tata to provide the time needed for a buyer to be found. |
| There are, however, important questions that must be asked before any decisions on the future are made. First, does it actually matter? Does UK Inc need an indigenous steel industry? If so, how is this to be achieved? Is state involvement essential, and if so what form might this take and what policies are necessary for it to flourish? In the context of the UK, this inevitably involves the role of the EU. | There are, however, important questions that must be asked before any decisions on the future are made. First, does it actually matter? Does UK Inc need an indigenous steel industry? If so, how is this to be achieved? Is state involvement essential, and if so what form might this take and what policies are necessary for it to flourish? In the context of the UK, this inevitably involves the role of the EU. |
| The economic context – a strong exchange rate, weak global demand with intensified competition, and of course the China question – is not propitious for the industry. Although the importance of the steel industry to the UK economy has declined, it possesses attributes that are critical to the economy’s success. The industry produces a trade surplus, its productivity, investment in R&D and training per employees are higher than the general UK economy. As a result it has an important impact on skills, demand and employment across the wider economy. | The economic context – a strong exchange rate, weak global demand with intensified competition, and of course the China question – is not propitious for the industry. Although the importance of the steel industry to the UK economy has declined, it possesses attributes that are critical to the economy’s success. The industry produces a trade surplus, its productivity, investment in R&D and training per employees are higher than the general UK economy. As a result it has an important impact on skills, demand and employment across the wider economy. |
| There is also significance beyond the impact on its supply chains. Geographically skewed to industrial areas of the country such as Wales, the Midlands, Yorkshire and the north-east, it is responsible for the retention of relatively high-paid, high-skill jobs in areas that are de-industrialising. When steel plants close or contract, economic demand is sucked out of an area and its skill base denuded. An equilibration around a low-pay, low-skill, and low value-added economy will in all likelihood evolve. | There is also significance beyond the impact on its supply chains. Geographically skewed to industrial areas of the country such as Wales, the Midlands, Yorkshire and the north-east, it is responsible for the retention of relatively high-paid, high-skill jobs in areas that are de-industrialising. When steel plants close or contract, economic demand is sucked out of an area and its skill base denuded. An equilibration around a low-pay, low-skill, and low value-added economy will in all likelihood evolve. |
| The economic multipliers associated with this are relatively well understood, but what I term the “social multiplier” is no less critical. Research has demonstrated the negative psychological impact of job losses on workers, many of whom have spent most, if not all, their working lives in the steel industry. Moving into different employment that, even if available, is often comparatively low-paid and low-skilled, affects not only the individual but their personal relationships, families and entire communities. | The economic multipliers associated with this are relatively well understood, but what I term the “social multiplier” is no less critical. Research has demonstrated the negative psychological impact of job losses on workers, many of whom have spent most, if not all, their working lives in the steel industry. Moving into different employment that, even if available, is often comparatively low-paid and low-skilled, affects not only the individual but their personal relationships, families and entire communities. |
| The steel industry is a “foundation industry”. These underpin the web of strategically important manufacturing and construction supply chains. Foundation industries account for 17% of UK manufacturing gross value added and 20% of manufacturing employment. Research from the USA shows that where advanced economies suffer from a defect in R&D and competitiveness it is because of the neglect and outsourcing of these basic industries that provide an infrastructure through which skills, R&D and innovation are nurtured. It is crucial for the international competitive success of advanced economies. | The steel industry is a “foundation industry”. These underpin the web of strategically important manufacturing and construction supply chains. Foundation industries account for 17% of UK manufacturing gross value added and 20% of manufacturing employment. Research from the USA shows that where advanced economies suffer from a defect in R&D and competitiveness it is because of the neglect and outsourcing of these basic industries that provide an infrastructure through which skills, R&D and innovation are nurtured. It is crucial for the international competitive success of advanced economies. |
| The business secretary, Sajid Javid, has referred to an “industrial approach” rather than “industrial strategy” – the belief that a hidden hand will nurture British manufacturing. Yet an industrial strategy for the steel industry is precisely what is required. In response to the Tata announcement, his Labour counterpart, Angela Eagle, has suggested part-nationalisation “until the storm has passed”. The business minister, Anna Soubry, says the government “is determined” to ensure that Port Talbot continues to make steel, yet the ability of any UK government to provide state aid is of course framed and restricted by EU rules – which makes a complete renationalisation of the plant more difficult. However, these rules do allow support for the industry for the purposes of research, innovation, environmental protection, mitigating the impact of the emissions trading scheme, development of green technologies and anti-dumping strategy. At a more fundamental level, the rules governing state aid for steel are not driven by an EU treaty and, with the will to do so, could be changed by agreement. | The business secretary, Sajid Javid, has referred to an “industrial approach” rather than “industrial strategy” – the belief that a hidden hand will nurture British manufacturing. Yet an industrial strategy for the steel industry is precisely what is required. In response to the Tata announcement, his Labour counterpart, Angela Eagle, has suggested part-nationalisation “until the storm has passed”. The business minister, Anna Soubry, says the government “is determined” to ensure that Port Talbot continues to make steel, yet the ability of any UK government to provide state aid is of course framed and restricted by EU rules – which makes a complete renationalisation of the plant more difficult. However, these rules do allow support for the industry for the purposes of research, innovation, environmental protection, mitigating the impact of the emissions trading scheme, development of green technologies and anti-dumping strategy. At a more fundamental level, the rules governing state aid for steel are not driven by an EU treaty and, with the will to do so, could be changed by agreement. |
| The form that state support might take is, of course, as much an ideological as a technical question. It was Harold Macmillan’s Conservative government in 1960 that established the National Economic Development Council. Industrial planning was and can be achieved. And let us not forget that, according to IMF estimates, the UK government offered in support to the finance sector £1.2tn, mostly in the form of loans and guarantees. That’s equivalent to £20,000 for every individual in the country. | The form that state support might take is, of course, as much an ideological as a technical question. It was Harold Macmillan’s Conservative government in 1960 that established the National Economic Development Council. Industrial planning was and can be achieved. And let us not forget that, according to IMF estimates, the UK government offered in support to the finance sector £1.2tn, mostly in the form of loans and guarantees. That’s equivalent to £20,000 for every individual in the country. |
| For those manufacturing and steel communities currently under threat, the “invisible hand” is all too palpable. Neither history nor the electorate will look kindly on a political system that demonstrates economic negligence based upon ideological dogma. Action is needed and now. | For those manufacturing and steel communities currently under threat, the “invisible hand” is all too palpable. Neither history nor the electorate will look kindly on a political system that demonstrates economic negligence based upon ideological dogma. Action is needed and now. |
| • This article was amended on 31 March 2016 to clarify the figure of £1.2tn for taxpayer support for UK banks and that EU rules do not prohibit renationalisation of the Port Talbot plant. It was further amended on 1 April 2016 to correct “the Tata Group” to “Tata Steel” in the first paragraph, and to correct the incorrect figure of £1.2bn given in an earlier version of this footnote. | • This article was amended on 31 March 2016 to clarify the figure of £1.2tn for taxpayer support for UK banks and that EU rules do not prohibit renationalisation of the Port Talbot plant. It was further amended on 1 April 2016 to correct “the Tata Group” to “Tata Steel” in the first paragraph, and to correct the incorrect figure of £1.2bn given in an earlier version of this footnote. |