Monday, 4 April 2016

Save our Steel

The steel industry seems to appeal to the front pages in a way that others do not. Perhaps those red-hot flows stir something in us, maybe the dangerous working conditions invoke a sense of heroic endeavour, maybe we are proud of our industrial past. Maybe we just liked The Full Monty.

Anyway, we know that the steel industry is in decline, and not just because of overcapacity in China leading to a flood of imports. Manufacturing industry now makes up only 10% of the UK economy.

George Osborne promised us a "march of the makers". That has not appeared. The UK current account (of which the balance of trade is one part) is in the largest deficit ever. What remains of heavy industry appears to be buckling under the weight of energy costs, and the rest of the economy seems to be slowing down.

So what should be done? Should the government prop up steel? Should it raise the drawbridges on foreign trade? The panicked reaction of the government does not bode well for free-marketeers. A good reason to be concerned about the stance on trade post-Brexit. The recyclability of tea bags will be the least of our worries.

Instead of yearning for the days of British Steel, the Austin Allegro, and waiting six months for the Post Office to install a party line, the UK needs to push on and improve its competitiveness. Only that way can the economy generate the products and services which keep us all afloat.

So what practical steps can the government take?

Energy: there is no face-saving way out: the government should announce that the new nuclear programme cannot work in its current form. If firms want to build new power stations then they will be free to do so, but without pre-determined wholesale prices. As ND points out, these "contracts for difference" distort the market and mean that investment in all types of generation is drying up. There should be a complete sweeping away of the thicket of taxes (for that is what they are) and subsidies. If you want to build a power station, invest your own money and take your own risk. At the same time, the government could announce that it will fast-track applications for new developments using proven technology. That probably means gas and onshore wind, but let the market decide. The greens and NIMBYs will just have to lump it. Press ahead with fracking permits.

Sterling: it is obvious that the Pound is too strong. However, "devaluation" does not often work, and currency wars are not what the world needs. What does work is a rigorous and credible monetary framework. The government should re-affirm its commitment to 2% CPI inflation. It could tweak the Bank of England's mandate to target 2% average inflation, or it could be really radical and move to a nominal GDP target. Any of those points would imply looser money in the short term, which would surely soften Sterling.

Housebuilding: slash the red tape which holds back housebuilding and commercial developments. Create Docklands-style development corporations for large urban sites. Build new towns. Throw more money at councils and housing associations to build more subsidised housing.

Infrastructure: accelerate public-transport investment. Build more roads. Sort out the broadband industry. Say yes to Heathrow. Say yes to Gatwick. Improve rail links to Stansted.

Much of this stuff requires the authorities to take on vested interests. So it is time for Britain's leaders to lead. Forget focus groups and Yougov polls. Set out a vision and persuade people that it makes sense. We know what needs to happen. Just get on with it.


Steven_L said...

Much of this stuff requires the authorities to take on vested interests.

And the (split) party in government have a majority of? A dozen or so backbenchers representing NIMBY constituents is all it takes now to kick any major infrastructure project into the long grass.

It looks set to stay that way too.

Blue Eyes said...

Yes, the prospects are depressing. I am sure that sensible proposals could attract support from some opposition MPs though, with a bit of shrewd strategy.

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

The Austin Allegro was a robust little car. As were the trains that BREL built and which are still in service 40 years later (and could go on another 20 if demanded.)

Other countries protect their engineering. France and Germany do. Germany has a trade surplus whereas we have a deficit.

Our economy is in the red whereas theirs is in the black.

If we are to remain EU then the strongest state must distribute all its wealth, its opportunities and take in its share of EU problems - otherwise the EU becomes an empire of the strongest state rather than the community it was intended to be. The Greeks are feeling this already.

Electro-Kevin said...

One way or another the British government will end up subsidising Port Talbot - be that an unemployed Port Talbot or a steel making Port Talbot.

We could:

- recover some of the Foreign Aid and prop up our own dodgy system rather than someone else's dodgy system

- we could pay the difference to whomever is willing to take on Port Talbot, say the sum of the welfare and artificial regeneration it is going to cost the UK taxpayer if manufacturing leaves the area

A totally free market is anarchy and a race to the bottom, as we are now experiencing. Yet to hit London and the taxpayer bailed-out City.

Steel production (as with energy) is also a vital strategic asset.

john cheshire said...

In my view whether a business is strategic or not it should be profitable. So, my questions are : is it possible to have a profitable steel production business? If so, what are the criteria that make such a business profitable? Which of these criteria are preventing our steel producers from being profitable? Can these deficient criteria be remedied? If they can, what is preventing the remedy? If they can't why should taxpayers money be used to keep a lame duck on its feet?

Blue Eyes said...

I agree with that John. I don't know why steel is "strategic": we can buy it from anywhere, we can't make it ourselves from iron ore because the iron ore doesn't get dug up here anymore, etc..

EK I wouldn't get too envious of the French economy.

Sebastian Weetabix said...

What is preventing western steel producers being profitable is partly dumping by the Chinese. They are selling below material cost. This is not a functioning free market, it is a deliberate effort to hollow out western industrial capacity as basic steel production the foundation of all industrial capacity. The other major factor is self-inflicted high energy costs. How the same politicians can support the climate change act & associated idiocies and then complain about industry closing is a wonder to behold.

Having said all that, it doesn't necessarily follow we should have a blast furnace at Port Talbot - shipping ore in to be processed here is questionable - but blithely allowing the entire industry to go the wall means in the end there will be no heavy industry in this country at all. For an island not to have the capacity to build ships is, in my view, problematic to say the least. We can't all survive on selling cappucino to each other over the internet.

Anonymous said...

The steel workers are f**ked - and they know it. All that is happening is political point scoring for whatever cause can be shoehorned into the situation e.g. green energy, Brexit, non-doms, China, banking etc.

If only the Chinese could create an oversupply of politicians we may be able to get rid of a few or significantly reduce their costs.

PS As an ex-maker (nuclear power) its clear that no matter how lovingly or with passion you produce the ultimate product you are only as good as your last widget.

dearieme said...

(i) The Greens

(ii) The recycling of steel

(iii) Global overcapacity

(iv) Bloody Chinese, eh?

The only valid criticism of this list is that you might like to put the four points in a different order. Or I suppose you could add the great quotation from Toilets “Humankind cannot bear very much reality.”

hovis said...

There are good bits in British Steel and I beleive it is not just that there was no investment - there is no real market so the market fundamentalist bollocks simply doesnt wash. The replacement cost of capital rises massively once all is binned. A case cane be made for planned, structured and defined intervention.
As ever these are questions of timescale and efficacy over any narrow definition of efficiency. i.e. over what period should an industry be 'profitable' - 1, 5, 20, 50 years?

Nick Drew said...

I would be interested to know exactly what constitutes 'dumping'. Is, for example, $38 oil being 'dumped' on us by OPEC et al?

My strong instinct is that basic grades of steel are a commodity, the price of which has collapsed. So what?

So, maybe 'dumping' is selling at a price lower than cost? One should never expect the cost of anything to relate particularly closely to its price in the market (aside from the occasional stopped-clock coincidences). The price of oil is not remotely related to the marginal cost of its production. The price of houses is not obtained by gazing long and hard at the price of bricks, it is guaged from the windows of estate agents, etc etc. Cost-plus is a monstrous fallacy - no manufacturer is owed a living and cost-plus contracts (e.g.) in the defence sector are a well-known nonsense

Of course the Great Debate between free trade and strategic self-sufficiency rumbles on as ever, not to be resolved any time soon I think. (I am as keen to be able to wage war on our enemies as anyone: but sometimes even vital war materials must be imported ...)

Andy Dan said...

The steel price has collapsed, yet Tata want to keep their production in the Netherlands and forge a steel alliance with the Germans.
The problem is energy prices, business rates and labour costs.
As pointed out, steel is a strategic industry, yet we mine no iron ore nowadays. Maybe best to stockpile a few million tons of cut price Chinese steel now in case of emergency.
Modern processes convert scrap into good quality steel. We don't need the blast furnaces now.
Having lived in Port Talbot until recently, I know that Tata also own the coastal region near the works which is rich in coal (Cefn Bryn)
Why not build a coal fired power station there?... Oh, sorry, that's not allowed now

Graeme said...

oh yes...the infrastructure spend, as advocated by all economists who lack a window onto reality. Who builds the roads, the houses, the railtracks? Get real you arse. As a reminder, British house completions were down this year. So who builds the crap?

Sebastian Weetabix said...

What is dumping? If you're a Chinese state-sponsored steel manufacturer losing hundreds of dollars on every tonne, and you nevertheless increase your production by >20% driving prices down yet further.... I would say by any reasonable definition that is not the market at work, that is dumping. The Chinese are not stupid, this is being done for strategic reasons to hollow out Western industrial capacity.

Electro-Kevin said...

Nick - I've never invoked the war argument for steel. I believe it is strategic because - if we close our ability to manufacture and the Chinese put up their prices afterwards where are we then ?

There is also the fact that, though we are a high wage economy now, we are to become a low wage economy some time soon.

Corporate tax avoidance and the importation of masses of cheap labour, exportation of work, loss of skilled work and automation means it will be so.

We could even be leaving the EU soon and be free of the greencrap costs.

Isn't it premature to be letting Port Talbot go ?

James Higham said...

Instead of yearning for the days of British Steel, the Austin Allegro ...

Did we ever yearn for the Austin Allegro? Maybe for the AH 3000.

Weekend Yachtsman said...

"The greens and NIMBYs will just have to lump it."

If it were genuine market prices there'd be nothing to lump it about: not a windmill in sight anywhere.

No subsidies == no windmills.

Bring it on.

Nick Drew said...

Kev - you make a good strategic case, I am looking into this in a bit of detail (for professional reasons) and as always the knock-on consequences can be difficult to fathom as they work through a complex network of industrial inter-connections

And of course social interconnections (often so lamentably overlooked by Thatcher and her -ites). Have you seen this? - by our old friend Paul 'Marxist' Mason, who is a dreadful atavistic leftie but also (I would judge) an Honest Man

Blue Eyes said...

Paul Mason went to a boys' grammar school. Perhaps he might want to reflect on how "poor white kids" were effected by cultural Marxists' destruction of the education system. Fatcher certainly played her part in that (her great shame was her disinterest in schooling) but she didn't start the fire.

Electro-Kevin said...

Blue - The education problem is due to bad parenting. The average person I know in my age group is a kidult.

James - My point about the Allegro was not a yearning for it but wonderment at how the British got trashed whilst the nations that made the rust buckets of that era (Datsuns and Fords) came out of it intact.

I expect, with a little care, you could be running around in your Allegro today (people are certainly out and about in Morris Minors) and I'd like to see a cost benefit analysis of fuel consumption and environmentalism over the cost building several cars just to keep up with fashion and to reduce emissions.

British Aerospace and British Telecom were at the forefront of global innovation. BR was carrying more passengers per member of staff than any railway in Europe.

Yes. There was a lot wrong. But we were sold a lot of lies about how bad we were.

Only recently I bought a second hand amplifier (an early '80s Session amp) and took it to Maplins for repair. The technician opened the back of it and gasped. He said "Damn ! We were good !!!"

The people embraced Thatcherism. Understood the need to compete. Rejected unionism. Knuckled down only to see their work go overseas anyway.

Half baked Thatcherism saw welfarism become ingrained because she didn't go the whole hog. She continued to subsidise industrial districts after the industries had gone (people should have been forced to relocate from industrial closure.) From it grew a culture of entitlement, dependency, victimhood, sloth, dishonesty and fecklessness.

And now that is the magnet for so much immigration "Britain gives away free money !!!".

Our national debt speaks for itself.

So of Port Talbot. Have we learned nothing from the past ? If Port Talbot is uneconomic then the government should have the balls to tell its people "On yer bike."

And if they don't have the balls to say that they should ditch foreign aid and subsidise our steel !

Electro-Kevin said...

Nick - I've read that article and I have something odd to say about it.

Thatcher was responsible for the decline in white aspiration but it was through her kindness, not her wickedness. (I believe she was a good person.)

I expect that if people had been forced to move to economic hot spots, without the offer of welfare dependency this country would have become a technological white dwarf rather than an economic black hole.

She told us we could not have subsidised coal but we got subsidised coal anyway - she paid our miners to sit at home while Australians mined our coal instead.

Thereafter our people became dependent, soft and infantalised. Too scared and too soft to push their kids.

I and my wife have been very harsh with ours. They were both dragged out on the Moors when they were tiny, no matter the season or the weather. Both are now hard and outdoorsy and are completing their DofE golds this week.

I will have news of A level and IB results later this year. The university offers are exceptional and I don't want to tempt fate. It is a nerve wracking time at the moment.

There is little discrimination or bad teaching for white kids in this country. Any failings are down to lack of parental support and lack of parental respect for teachers and the educational system and I have seen it all recently for myself. Also bad food, bad TV, bad internet, bad peer grouping.

Anonymous said...

EK - before this thread dies a death, I'd like to record my thanks for your analysis of the strengths and weaknesses of Thatcherism. IMHO brilliant.

I'd like to add that though there was no decline in white aspiration. It simply followed Tebbit's advice and moved elsewhere to more fertile opportunities - linking with the earlier comments about the diaspora.

adham said...

شركة تنظيف بالطائف شركة الهدي افضل شركة نقل عفش بالطائف كذلك هى افضل شركة رش مبيدات بالطائف
شركه الهدى
شركة رش بالطائف
خدمات الطائف
شركة تنظيف بالطائف
شركة تنظيف فلل بالطائف
نظافه عامه بالطائف
شركة تنظيف منازل بالطائف

adham said...

شركة تنظيف شقق بالطائف
نقل عفش بالطائف
بالطائف شفط بيارات
تسليك مجارى بالطائف
تنظيف خزنات بالطائف
رش مبيدات بالطائف
نقل عفش بخميس مشيط
شركة عزل اسطح بالطائف

adham said...

شركة نقل عفش واثاث بالدمام ابيات الشرقيه لخدمات نقل العفش والاثاث بالدمام
شركة نقل عفش بالدمام
نقل عفش بالخبر
شركة نقل اثاث الدمام
نقل عفش الدمام
نقل عفش بالدمام

adham said...

ان اردت نقل عفش منزلك بالدمام ابيات الشرقية من اهم شركات نقل العفش بالدمام والخبر والجبيل والقطيف والاحساء
شركة المتحدة
شركة نقل عفش بنجران
شركة نقل عفش بخميس مشيط
شركة نقل عفش بالطائف
شركة نقل عفش بمكة
شركة نقل عفش بينبع
شركة نقل عفش بابها

adham said...

شركة نقل عفش بالرياض
شركة نقل عفش بجدة
شركة نقل عفش بالدمام
شركة نقل عفش بالمدينة المنورة
شركة نقل عفش ببريدة
شركة نقل عفش بالقصيم
شركة نقل عفش بتبوك