Outside the marginals

a commentary on the politics that followed the UK 2010 & 2015 elections

Steeling ourselves for industrial collapse

Administrators from PwC have been appointed to run some parts of the Caparo group empire. …

Steel giant Tata is expected to announce major job losses on Tuesday. Recently the UK’s second largest steelmaker, SSI, went into liquidation. …

Matt Hammond, lead administrator [of Caparo] and partner at PwC, said: “This is a significant business with a wide range of interests across steel, engineering, vehicles products and technologies. Its scale and reach into significant customers and its importance to suppliers cannot be understated. We will be rapidly assessing all options for the businesses through this week and beyond.”
BBC News website, 19 October 2015 : Caparo steel goes into partial administration

There are numerous reasons for the problems, but there seems to be only one reason for the collapse of this industry; the government does not want to intervene.

This is no longer the Conservative government of Heseltine, who promised to intervene “before breakfast, dinner and tea” to help British companies.

Of course much of the steel industry in Britain is no longer “British”, but given the position of steel as a primary industry supplying British needs, that is not a good enough excuse.

Steel is pretty fundamental;

  • in most buildings, in roads, bridges, railway rails and sleepers, runways (think not just window frames but reinforced concrete and foundation piling)
  • in most items of plant that make and distribute things – factories, machine tools, cranes, warehousing
  • in many things that we buy – from paper-clips to cars.

Now we could import it – much as we import so many of the things we buy. Gideon even seems to want the Chinese to build HS2 for us – no doubt with Chinese steel. But is it sensible – strategically?

Steel is made from iron ore, limestone, coal and a lot of energy. As such it is not a sensible thing to ship around the world when we have iron ore and limestone, and we have access to coal and energy – given the will.

And yet we are told that it is “uneconomic”. This is due to “lower costs” elsewhere, exchange rate and demand issues.

Labour costs are part of the issue, but the industry in Britain has lacked investment and labour productivity is likely to be lower than in modern plants – which is critical when our hourly labour costs are higher. I don’t think anyone would advocate lowering British Steel workers’ wages to the levels paid to say Chinese steel workers. (Well, I say “anyone”; I mean “anyone with a sense of decency“.)

Energy costs are a huge part of the issue, but allowing our industry to close and the same steel to be made elsewhere does not fully address the issue. A significant part of the energy cost is “environmental”; allowing the same steel to be made in a part of the world with lower environmental standards (and increased “steel miles”) is environmentally counter-productive.

Exchange rate issues have two aspects. Short-term fluctuations and long-term trends. No one seems to be able to predict long-term trends, so let’s not agonise over them. Short-term issues are a problem – but they resolve in the short-term. Investment in the steel industry is inevitably long-term; building this sort of plant takes years with the expectation that it will be used for decades.

Demand for steel also fluctuates, but trying to get steel capacity to follow the economic cycle is senseless; by the time you have built new capacity to meet an up-term, you are approaching the next recession.

So, do we need steel? Yes. Do we need steel-making – or can we rely on the Chinese to supply our needs? Will they continue to supply cheap steel when their economy picks up and they need more steel at home? Will they continue to do so if we criticise their human rights record, or if we protest if they heavy-handedly suppress protests in Hong-Kong or Tibet? Perhaps in Gideon’s Britain we will cease to speak out – we already seem to not care too much about working conditions in those foreign factories which supply our needs.

Perhaps we have alternative sources of steel, say in Europe. Perhaps we have plans to get closer to our near-neighbours to ensure that we can manage the European supply of steel. On the other hand, I don’t think Gideon’s Britain has plans for closer integration with Europe.

So is this government planning to have industry critically dependent on foreign steel – or is it just not planning?

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One thought on “Steeling ourselves for industrial collapse

  1. Pingback: President Gideon and Lame Duck Dave | Outside the marginals

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