The bulk of steel production goes to a few big industries like building, engineering, shipbuilding and motor vehicles and to exports. Because of this, the industry is immediately affected by a decline of investment and production in those fields and has therefore always been regarded as the barometer of the state of trade.
The British steel industry’s present financial difficulties reflect the world recession, but in addition it faces a massive permanent reduction in the size of its operations.
Steel has a special interest because, more than any other industry, it has been subjected to “planning” by successive governments, including nationalisation by the post-war Labour government, denationalisation by the Tories, renationalisation by the following Labour government, with the prospect that some of its plants may now be denationalised yet again, it has also experimented with “worker-directors”.
The dependence of steel on the state of other industries was recorded in the Labour government’s National Plan in 1965:
Since the mid-fifties, steel consumption has tended to increase more slowly than the gross domestic product, mainly because the demand for steel in certain substantial sectors of use, such as coal mining, railways, shipbuilding and defence has remained stationary or has declined.
In its early years British iron and steel production had a commanding position. In the 1860s, using the cheap Bessemer process and helped by the ready availability of iron ore and coal, British steel production exceeded the combined output of the rest of the world. As other countries developed steel making the British industry lost its lead. In the USA steel production was speeded up to meet the big demand arising out of the civil war and in 1867 Carnegie, after a visit to this country to study the Bessemer process, began his great steel empire. By 1900 output in the USA was greater than that of Britain and Germany together. Many countries now have greater output than the British industry.
This did not mean that British steel output declined: in fact in 1970 it was larger than it had ever been, but growth was interrupted from time to time during world depressions. In 1884, in the middle of the Great Depression, Lord Randolph Churchill despaired of recovery:
Your iron industry is dead, dead as mutton; your coal industries, which depend greatly on the iron industries, are languishing . . . The shipbuilding industry which held out longest of all is at a standstill.
It was a false alarm and expansion was in due course resumed, only to be interrupted again between the wars. Output fell by nearly a half after 1929 and unemployment in the steel industry was running at 45 per cent in the early 1930s.
The present steel crisis differs from the earlier ones because the British industry no longer has the advantage of cheapness, its costs comparing unfavourably with those of the modernised steel industries in Germany, Japan and the United States. The steel-using industries in this country have declined so that there is no immediate prospect of demand for steel justifying present steel- producing capacity.
This massive over-capacity is largely the result of a new factor which came into play with the popularising, thirty years ago, of Keynesian ideas of “demand management” which the Labour and Tory parties both adopted, and of the Labour Party’s belief in government planning. Instead of the size of the industry being left to respond to market demand (as happened in the 19th Century) governments came to believe that they could bring about a condition of “full employment”, with the whole of industry working continuously at full capacity. It was in this mistaken belief that the National Plan in 1965 aimed at a big increase of steelmaking capacity, and the investment of hundreds of millions of pounds to bring it about. The Tories followed the same policy:
For the next few years a steel-making capacity of 20 million tonnes is likely to be more than enough for the British Steel Corporation. Yet in 1973 the last Tory government approved a development programme designed to achieve a capacity of over 30 million tonnes by the early 1980s. (Financial Times, 7 November 1979.)
Capitalism refused to respond to the planned expansion. Instead of “full employment” it produced a million and a half unemployed and production generally fell instead of rising.
So by the mid-1970s the Labour government, which had thought that all it had to do was to expand production, found itself planning a large-scale closure of unprofitable steel plant with tens of thousands of steel workers being cast adrift to find jobs elsewhere. The Thatcher government has speeded up the closures.
This has a lesson for steel workers, and other workers who shared the absurd belief that full employment and permanently busy industries are conditions that governments can command at will.
And the workers who supported nationalisation because they thought it would give them higher wages and permanent job security should by now realise that market demand, which determines how much can be sold and therefore how much is produced, takes no notice of whether the producer is a company or a nationalised industry.
There is also another cloud hanging over British steel. The present plans envisage a smaller but more competitive industry, but with the development of crude steel production in the developing countries at still lower costs it is being urged that basic steel should be imported, leaving the British producers to concentrate on the manufacture for export of “speciality steels” out of the imported basic materials.
If this is the line of development there will be more closures and redundancies in future years. A tragedy for thousands of workers, with perhaps whole towns devastated by concentrated unemployment. But a tragedy typical of capitalism, which places profits before people.