Friday, 10 June 2016
We live in troubled times
More than 30 years after the Thatcher government adopted a policy of systematic indifference to the fate of British manufacturing, it comes as no real surprise that the future of the UK steel industry once more hangs in the balance. Nine years after Tata Steel bought the remnants of the industry from Corus, the company ended up losing significant amounts of money by holding onto the Port Talbot plant in the face of a massive glut of global output, triggered largely by Chinese overcapacity.The whole issue is a microcosm of the economic problems facing the UK today and raises a number of uncomfortable questions for the future of the British manufacturing sector in general, and steel in particular. First off, how much support is the government prepared to give to an industry which is potentially of critical national importance? Second, to what extent can we rely on free markets to generate the kind of outcomes which are socially acceptable? And third, to what extent can China be relied upon to play by the rules of the international trade game?
Regarding the first of these, the government will say that it has no place to interfere in the running of an industry in which the private sector has failed to make a go of it, therefore the government cannot do better. But I was always taught that one reason for maintaining key industries in government hands in the first place was to protect the national strategic interest. It is all very well to say that in a global marketplace, in which British demands will be met by foreign suppliers, the UK will never face any shortages. But this assumes that the world as we have come to understand it over the last 15 or 20 years will remain as stable as it has always been. We have learned enough since the financial crisis of 2008 to know that equilibria may not be as stable as many people think. It would be very short sighted to allow the skills inherent in the steel industry to wither and die. After all, Britain was once a leading power in the world nuclear industry and now it does not possess the capabilities to build its own nuclear reactors, and must rely on the French and Chinese to build the generating capacity necessary to keep our lights on. It is no small irony that the government's unwillingness to upset the Chinese desire to fund the construction of Hinkley Point is one reason why it has not done more to provide support to the workers at Port Talbot.
As for the second issue, over the last three decades successive governments have extolled the virtues of free markets as being the way to enhance British living standards. On average, to paraphrase Harold McMillan, we've never had it so good. But we live in a country in which wealth and income inequality are widening (for anyone who doubts this, take a look at Tony Atkinson's Chartbook of Economic Inequality). Just ask those in the former industrial heartlands of the North East or Scotland whether they are better off following the closure of their heavy industries. What is the future for the former Durham coalfields? Where once was industry are now miles of beautiful countryside. On the surface, you might say, a vast improvement. But where are the jobs for the locals who will put money into the local economy to maintain their environment? London and the South East may be (relatively) booming, but the price of the free market has been to distort the U.K.'s economic geography and I fear for the future of those regions which don't have much going for them in terms of job creation.
As for the role of the Chinese, it is pretty obvious that they will look out for themselves. It has become an economic superpower which will write the rules for the 21st century and it will be increasingly less bound by the rules of the global economy written by the western powers. There is nothing the UK alone can do about it - it may have a lot more clout if it chooses to remain in the EU on June 23, but in the event of Brexit, expect the UK to be even more susceptible to the whims of the big global economic powers.
I will return to all these themes at some point in the course of future posts. But I will end with this simple thought. If the UK government continues with its policy of non-interference in matters of strategic national importance, it will continue to lose economic influence as decisions which affect workers in this country are increasingly dictated in Beijing and Mumbai rather than London.
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