Thursday 31 March 2016

Ignoring difficult questions

Instinctively, it seems to me that anyone who took to any part of the Welsh media to argue against government intervention in the steel industry in the light of the Tata announcement would be a very brave person indeed.  But someone actually has, and in fairness, some of the points he makes deserve consideration rather than outright rejection (which is not the same as saying that I concur with his conclusions).
Much of the reaction to Tata’s decision looks like knee-jerk stuff – ‘the government must do something’ – rather than a thought-out strategy for responding to the underlying problem of a globalised economy in which an outdated industry in Wales is struggling to compete.  Paul Swinney’s point about it not being clear how any government bail-out “would help turn around the plant’s fortunes” is an entirely valid point to raise, and one which cannot and should not be dismissed lightly.
He also questions whether we should even be trying to compete with lower wage economies elsewhere for such basic industries as steel, or whether we should accept that our future lies elsewhere.  That’s not an easy question to be asking either, but it is another brave one.  For various reasons which I won’t go into here, I don’t think that it’s the right approach, but merely asking the question raises doubts in my own mind as to whether either the Welsh or the UK governments have any sort of coherent strategy either way.  Sometimes they seem to be paying lip-service to the idea of maintaining a heavy industry element in the economy; at other times their actions seem to suggest that they’ve already written off that approach and are only interested in the new.  But committing to a coherent strategy, one way or the other, would surely be better than merely reacting to events.
Many of those suggesting some form of nationalisation seem to see it as a purely temporary situation, pending the onward sale of some or all assets.  It’s an approach which meets the requirement of ‘being seen to do something’ in the short term, but could all too easily lead to a cherry-picking of assets with the biggest loss-makers simply ending up as the responsibility of Government.  It doesn’t look much like a long term strategy – nationalisation is being regarded here as a response to market failure rather than as an option for a sound long-term economy.
Adam Price’s article in today’s Western Mail offers a glimpse of a more forward-looking strategy in which we would have a Welsh steel company with an entire portfolio from steel production to high-end value-added products.  If the steel industry is to be a viable part of the Welsh economy for the long term, that ‘entire portfolio’ is surely one of the most important factors; the more conventional approach of insisting that each individual component turns a decent profit is a recipe for ending up with nothing. 
It’s not a problem-free solution, however, and I’m far from certain that it isn’t glossing over some of the issues.  One of the problems causing the industry in Wales to lose out to competitors elsewhere is precisely the fragmented and dispersed nature of the industry here compared to more integrated plants elsewhere.  Steel travelling by road or rail from one plant to another to be processed is a factor in the production process which places us at a disadvantage and one whose rational resolution in order to make the industry more viable would itself be far from painless.
And that issue of competition with other plants elsewhere brings us to the central economic question which we need to be asking.  The intensity of that competition itself varies over time.  That’s partly a result of the economic cycle; the demand for steel is closely related to the health of the economy at a point in time.  It’s also partly a result of developing economies not wanting to be dependent on others for basic materials.
Nationalisation in itself, whether in full or in part, addresses neither of those issues and that makes it very much a short term response, because neither issue is going to disappear.  Given the immediacy of the requirement to respond and the failure of governments to have an industrial strategy in place, it may well be the most realistic option, but unless there is a longer term industrial strategy to underpin it, it’s unlikely to offer much for the long term.
Capitalism has, over the past half-century or so, become increasingly short-term in its outlook, but there are parts of the economy which require a longer term view to be taken.  Non-interventionism has become almost a creed, for Tory and Labour alike, who prefer to let ‘the market’ decide.  But what if ‘the market’ is unable or unwilling to take the longer term view required?  If government won’t do so either, then we are at the mercy of short-termism.  What is being presented and treated as a short term crisis in one industry is actually drawing attention to a wider economic failure – a failure of vision, strategy, and direction.


Bored of Labour said...

Is anyone surprised at the hysterical knee jerk reaction, without steel what has Port Talbot got to look forward to, nothing is the answer sadly, just look at Ebbw Vale and the rest of the Valleys left to rot by Labour and Tory government’s for their future by parties that don’t care.

Neither UK nor Welsh Government has any interest in saving the UK & Welsh Steel Industry and both were caught napping by TATA’s announcement but they shouldn’t have been, but at least it started a debate. However with Tories in power till 2020 at least and Labour guaranteed to be the next Welsh Government after May what hope of alternative economic plans?

Paul Mason sums the situation up well

John Dixon said...

Thanks for the link. It underlines the point that the problems are being looked at in a vacuum, with no strategy to give context or direction.

And I also agree with your point that the situation in Port Talbot should have come as a surprise to no-one - it's been decades in the making.

Anonymous said...

We're in trouble and this will hurt the Welsh notional GDP even further. All those good salaries, potentially gone.

Can anyone explain clearly what the Welsh Government can do? I'm not persuaded this isn't a UK responsibility. But I would prefer Welsh action.