The Redcar Steelworks is being mothballed. This is the latest in a long line of closures in the UK steel industry. Why is UK steel being destroyed and who is to blame?
British heavy industry has all but disappeared over the past 50 years. The decline began with the dumping of Japanese motor cycles in the 1960s and 70s. The Japanese subsidised the export of their bikes to the UK and the UK government declared that either the UK motorcycle industry must increase productivity to compete or die. It died. Having succeeded so easily in the motorcycle trade the Japanese turned to cars. This time the UK government intervened by nationalizing the industry, creating a behemoth that was destined to decline and die. And so on, for industry after industry, foreign, government backed primary producers, helped by extreme left wing unions and appalling management in the UK, simply decimated domestic UK coal and steel production and met the same government reaction.
So what should the Government have done? In the case of motorcycles it should have raised tariffs and aided investment in automation and modern management practices. This might then have been a model for other industries. Sadly, in the absence of such intervention, the other heavy industries had been so thoroughly infiltrated by the unions during the Cold War and the management was so antiquated that they were destined for large scale destruction. However, in the 21st century the Cold War is over and management techniques in the UK are generally as good as anywhere. So what should the Government do now?
What are the Germans doing? Germany has been a smooth operator within the EU regulatory regime. It provided cheap energy to heavy industry through tax reliefs (the latest incarnation of this policy is differentiated Green Taxes) and has stimulated domestic demand by providing large grants to its various states which could then be used to foster preferential buying of domestic produce. It has also directly subsidised heavy industry when required, but at a lower level than its competitors, so that it can claim that these competitors in France, Italy etc. should receive lower subsidies, so damaging their prospects. The key to Germany's success is indirect subsidy and perpetually claiming to be the only fair player in the EU. Germany sees the EU as an opportunity for dominance, not as a level playing field where fair play might occur.
If the UK were to operate like Germany it would have high, "green" taxes on energy and then provide heavy industry with 100% relief through an arcane refund mechanism, it would provide local authorities with funds to build tramways etc but with the caveat, that is acceptable in the EU, that these government consumers should specify British trams and British steel for the rails. The key is to take the German approach of he who cheats subtly wins. This works extremely well in the EU because a European newspaper might run a story about unfair, direct government subsidies to Italian steel producers but would not bore their readers with the routing of German Government funding through State Governments, to State Government Banks and out again at low interest to a German car manufacturer. These interventions only need to provide a 10-15% advantage to domestic industry for it to destroy its competitors in the EU.
Given that everyone knows that there is widespread cheating in the EU, it is strange that the EU does not permit transitional relief for producers like Redcar. After all, the strategic benefit of Redcar steel should benefit the whole EU. It is also astonishing that the EU is responding to steel, aluminium and other dumping of Chinese products by a glacially slow set of trade negotiations with China when action is needed to simply ban this practice. It should never have been allowed in the first place and the EU could stop it at any time. The EU has clear responsibility for tariffs and protection against dumping but the media always lets it off the hook.
What can the UK Government do to save Redcar? It needs to start copying the Germans and then it needs to develop a defence industry that only uses domestic suppliers. This will be expensive and even apparently absurd, with unused tanks and aircraft and mothballed ships. However, the whole point of the exercise would be to help strategic industries get through troubled times. The help should only be given to companies that can demonstrate that, in the good times, they can sell much more than 50% of their output commercially. These two approaches will provide the essential aid and buffer for plants like Redcar. What the government must not do is seek foreign investment (see The Imbalance of UK-EU Trade and its Consequences).
When considering the EU we should not just select the areas of EU sovereignty that we like and then praise the EU, we should also consider the other areas where the EU is sovereign and blame it for its mistakes and tardiness.
First published 29/9/15
British heavy industry has all but disappeared over the past 50 years. The decline began with the dumping of Japanese motor cycles in the 1960s and 70s. The Japanese subsidised the export of their bikes to the UK and the UK government declared that either the UK motorcycle industry must increase productivity to compete or die. It died. Having succeeded so easily in the motorcycle trade the Japanese turned to cars. This time the UK government intervened by nationalizing the industry, creating a behemoth that was destined to decline and die. And so on, for industry after industry, foreign, government backed primary producers, helped by extreme left wing unions and appalling management in the UK, simply decimated domestic UK coal and steel production and met the same government reaction.
So what should the Government have done? In the case of motorcycles it should have raised tariffs and aided investment in automation and modern management practices. This might then have been a model for other industries. Sadly, in the absence of such intervention, the other heavy industries had been so thoroughly infiltrated by the unions during the Cold War and the management was so antiquated that they were destined for large scale destruction. However, in the 21st century the Cold War is over and management techniques in the UK are generally as good as anywhere. So what should the Government do now?
What are the Germans doing? Germany has been a smooth operator within the EU regulatory regime. It provided cheap energy to heavy industry through tax reliefs (the latest incarnation of this policy is differentiated Green Taxes) and has stimulated domestic demand by providing large grants to its various states which could then be used to foster preferential buying of domestic produce. It has also directly subsidised heavy industry when required, but at a lower level than its competitors, so that it can claim that these competitors in France, Italy etc. should receive lower subsidies, so damaging their prospects. The key to Germany's success is indirect subsidy and perpetually claiming to be the only fair player in the EU. Germany sees the EU as an opportunity for dominance, not as a level playing field where fair play might occur.
If the UK were to operate like Germany it would have high, "green" taxes on energy and then provide heavy industry with 100% relief through an arcane refund mechanism, it would provide local authorities with funds to build tramways etc but with the caveat, that is acceptable in the EU, that these government consumers should specify British trams and British steel for the rails. The key is to take the German approach of he who cheats subtly wins. This works extremely well in the EU because a European newspaper might run a story about unfair, direct government subsidies to Italian steel producers but would not bore their readers with the routing of German Government funding through State Governments, to State Government Banks and out again at low interest to a German car manufacturer. These interventions only need to provide a 10-15% advantage to domestic industry for it to destroy its competitors in the EU.
Given that everyone knows that there is widespread cheating in the EU, it is strange that the EU does not permit transitional relief for producers like Redcar. After all, the strategic benefit of Redcar steel should benefit the whole EU. It is also astonishing that the EU is responding to steel, aluminium and other dumping of Chinese products by a glacially slow set of trade negotiations with China when action is needed to simply ban this practice. It should never have been allowed in the first place and the EU could stop it at any time. The EU has clear responsibility for tariffs and protection against dumping but the media always lets it off the hook.
What can the UK Government do to save Redcar? It needs to start copying the Germans and then it needs to develop a defence industry that only uses domestic suppliers. This will be expensive and even apparently absurd, with unused tanks and aircraft and mothballed ships. However, the whole point of the exercise would be to help strategic industries get through troubled times. The help should only be given to companies that can demonstrate that, in the good times, they can sell much more than 50% of their output commercially. These two approaches will provide the essential aid and buffer for plants like Redcar. What the government must not do is seek foreign investment (see The Imbalance of UK-EU Trade and its Consequences).
When considering the EU we should not just select the areas of EU sovereignty that we like and then praise the EU, we should also consider the other areas where the EU is sovereign and blame it for its mistakes and tardiness.
First published 29/9/15
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