Nationalisation: Tata Steel shows it’s not always a dirty word

As the BBC Today presenter Justin Webb phrased it during an interview over the future of Tata Steel, this is about people and not just about a metal.

The decision by the directors of the Indian parent company to put Britain’s biggest steel manufacturer up for sale not only threatens 17,000 jobs but also puts the government’s role firmly in the spotlight.

The decision by the Mumbai board not to shut the company has meant that the steel plants in Port Talbot in South Wales as well as sites across the Midlands and the North of England will stay open - for now.

If no buyers are found the impact will clearly be devastating on industrial regions of the country that have taken a series of hits since deindustrialisation took hold in the early 1980s.

The direct impact of the loss of 17,000 jobs will be bad enough but the second-round effects in terms of the thousands of jobs in the supply chain and the loss of local spending power will magnify the damage.

The factors behind the crisis in the steel industry are well known. China developed an enormous steel industry to feed its heavy demand for the metal as a result of its giant infrastructure investment. Now that China and other emerging market economies have slowed and Beijing is focused on diversifying away from manufacturing, that demand has fallen.

However rather than mothball its plants China is dumping its excess steel on world markets. Back in the day Western governments could have responded by hiking tariffs on imports but since China joined the World Trade Organisation they can only respond by launching a lengthy anti-dumping case.

On top of that, the UK has been more aggressive than its rivals in raising energy costs to reflect its climate change targets.

So far the British government has shown little appetite to intervene. Six months ago SSI UK, a Thai company that had bought Teesside Steelworks in Redcar off Tata, threw in the towel after three loss-making years.

The plant was put up for sale but no buyers stuck up their hands. After the government was unable to intervene in the liquidation process, the coke ovens and blast furnace were extinguished. The direct loss of 2,200 jobs and the same again in the supply chain sent reverberations across Teesside.

Hopefully Whitehall has learned some lessons from Redcar. Free market economists argue that government intervention should be strictly limited as attempts to buck the market led to massive waste of resources and create false incentives.

But steel is clearly not following free market principles and the UK and EU authorities need to push for a rapid investigation of China’s anti-dumping that could enable it to impose tariffs.

TO SAY that steel is not as critically important to the economy as banking or railways is wrong

But in the meantime the UK government needs to take more decisive action. While everyone agrees that the best solution is to find a buyer or buyers for Tata’s operations, that is not going to happen quickly - if at all.

The huge direct and indirect costs of the closure must trump any ideological opposition to the government taking public ownership of the steel industry. Admittedly given that this effectively means reversing the 1988 privatisation of the British Steel it will be a bitter pill for some Tories to swallow.

Whether it is dressed up as temporary nationalisation or subsidies aimed purely at keeping the flames burning and the staff on the payroll does not matter hugely. The important element is to keep the plants open and the skilled staff available.

Few people would doubt the wisdom of the nationalisation of the Royal Bank of Scotland in 2008, as the wider implications of the failure of a clearing bank were both huge and terrifying. Putting Railtrack in administration underwritten by the Treasury in 2002 was sensible given the alternative of the bankruptcy of the railway network.

To say that steel is not as critically important to the economy as banking or railways is wrong. The UK needs a steel industry to ensure that its investments in defence and major infrastructure are not dependent on steel imports. There has been a simmering resentment among the UK’s industrial heartlands at the rush to bail out the banks but let other parts of the economy dangle in the breeze. It is time to correct that.

Indeed the government could use future major projects such as Crossrail2, High Speed 2 and the Hinkley Point nuclear plant conditional on the use of a proportion of British steel. Brussels may not like it but is unlikely to rock the boat ahead of the Brexit referendum.

The climate of public opinion has changed greatly since the heyday of privatisations in the 1980s. Consumers faced with soaring energy bills and spiralling rail fares no longer see unaccountable private - and often foreign - ownership as obviously preferable to state-run firms.

Nor do voters care as much for free and open trade as they did in the past. Textbook economics may say that open trade and foreign ownership deliver greater wealth and job creation in the long-run, but in the cold light of the here and now people are worried about the loss of their jobs and the employers who would take on their children.

As US presidential candidate Donald Trump has shown with his anti-trade rhetoric, in the absence of clear words and action by the government, people will show that what they care about is not global trade but the local reality.

Here is an opportunity for the UK government to do what governments do best: in times of trouble, act quickly, act decisively and, as the Americans say, go big.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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