The perfect storm that brought a clunking industry to a sad halt
THE first thing to be said about the crisis in Britain’s steel industry is that, among its thousands of other blameless victims, it will be a disaster for the workers at the Dalzell and Clydebridge plants.
The second thing is that opposition parties, particularly Labour, will scent a political opportunity. One person’s crisis is another’s means of embarrassing the Scottish Government. Why, Labour asks, won’t ministers do something? What use, they will scoff, is a ‘jobs task force’, however wellintentioned it might be? And why didn’t the SNP insist Scottish steel be used in major infrastructure projects, such as the new Forth crossing?
That, of course, is what is expected from opposition political parties. But, like so much else, this crisis – which might cost 5,000 jobs across the UK, including 300 in Scotland – is not as simple as it might seem. Calls for the Government to do ‘something’ are as loud as the specifics on what that ‘something’ might be are silent.
Few politicians have gone as far as Alex Salmond who suggested that, if necessary, the Scottish Government should consider nationalising the two Lanarkshire plants as they constitute a national ‘strategic asset’.
And for good reason. Nationalisation is a heavy price to be paid for safeguarding what is, in Scotland, a relatively small number of jobs. Besides, the very politicians who now call for something to be done are often those whose decisions helped exacerbate the steel industry’s difficulties.
In reality, government is an endless series of trade-offs. Perfectly laudable policy goals in one area can have damaging consequences in another. For instance, in recent years a consensus has emerged, especially on the Left, that energy prices must be hiked to incentivise a switch to ‘greener’ forms of energy as part of a broader bid to reduce carbon emissions.
This has come at a cost measured by increasing domestic fuel bills and, significantly, dramatically rising electricity costs for energyintensive industries such as the steel sector. The pre-tax cost of electricity paid by steel producers in France and Germany is barely half that paid by their British competitors.
In addition, the strength of the pound has made it harder for UK firms to export, while the slump in the Chinese domestic economy has left China with unused steel manufacturing capacity encouraging it to export steel at rockbottom prices. Meanwhile, EU rules on state-aid to industry sharply curtail any government’s ability to intervene.
British steel manufacturers, including Tata in Lanarkshire, might be able to ride out any one of these storms but being struck by them all at the same time is a hurricane of a completely different kind.
No industry can remain immune to the ageless laws of supply and demand. The global industry is now capable of producing more steel than it can sell. That means prices have plummeted by 50 per cent in four years. Across Europe, demand has dropped since the financial crisis and around one European steelworker in every six has lost their job.
It doesn’t help that Britain’s steel industry is comparatively small (and the Scottish component is tiny by international standards). The UK accounts for only 7 per cent of European steel, while China produces half the global supply.
There is a limit to what governments can achieve, even if they were minded to intervene. The controversy over the steel used in the new Forth crossing demonstrates this. Almost all the 37,000 tons needed were bought from Chinese and European companies. Unions complained of ‘an over-emphasis on cost at the expense of a focus on value to Scottish industries and communities’. Ministers countered that the contracts were not for raw steel but for ‘structural steelwork fabricators’ and no Scottish fabricators bid for the work.
HERE, two competing sets of interest apply. On the one hand, local industries and the wider Scots economy have an interest in winning public works contracts; on the other the taxpayer has an interest in that work being delivered with a keen eye on value for money. In other words, cost counts.
Steel, like so much else these days, is a global marketplace. That places older, more expensive, plants in advanced countries at a serious disadvantage.
UK steel production has actually increased in recent years but, thanks to falling prices, profitability has not.
Globalisation, however, has produced vastly more winners than losers and not just in the developing world. China’s economic marvel, in particular, has been a boon for UK consumers. Computers, phones, TVs and much else besides have seen quality increase even as their real cost has fallen. That increases both your quality of life and the amount of disposable income consumers have to spend on other products.
That might seem a trivial, even heartless, point when set beside the agonies of families dependent upon steel for their living, but it is merely another reminder that the immutable law of trade-offs cannot be bucked. There will be losers but also many winners.
Scotland has long had a powerful relationship with heavy industry. The great shipyards on the Clyde, like the locomotive works and steel plants that once built the world, are an inescapable feature of our psychological landscape. Hence the thirst to save the last remnants of our steel industry.
The truth is that Scotland is less reliant on manufacturing than ever before. Across the UK, manufacturing accounts for 10 per cent of economic output and the metal industry, including steel, for somewhat less than 10 per cent of that.
Our economic future is vastly more dependent upon service industries and the ‘knowledge economy’. This, not heavy industry, is where the country’s comparative advantage lies.
That is little consolation to the steelworkers, of course. The owner of a cafe near the Dalzell plant yesterday said: ‘The older ones know they will never work again. There’s nowhere else for them.’ That’s a heavy thought to bear but there is a limit to what the Government can do to buck the market.