Indian multinational, Tata, is walking away from Britain’s last remaining steel operation: “Zero book value”. European and British regulation and electricity prices make it a loss leader. After all of Britain’s backhanders and promises to use the mill for British boats and British buildings, Tata said “no thanks”. And the Queen was so nice to president Modi last year!
I am one of the first to be dismayed about the death of a production based industry in Great Britain. Despite my personal proficiencies, I do not have long term trust in the services industry, especially since no successful economy has allowed itself to become so mired in the generation of intangible assets. Germany, Japan, BRIC even the United States base their economies on the production of physical things (30%, 26%, 22%, 36%, 29%, 42% and 20% respectively). The United Kingdom (19%) is last on that league table and having an economy nowhere the size of the United States is last by a lot. “Oh but France…” you may begin, but I’ll stop you there. France is not company that we need to keep. The French position is weak and perhaps only saved by the incestuous link between the stateless energy giants and producers and it’s government. Ever since BP started calling itself “better petroleum” we’ve had to cede the fact that this titular company (being composed of many non-British Interests) is more of a state unto itself than a producer to call our own. Like KFC and Kentucky! France, perhaps most importantly, is also nestled fully in the bosom of Europe, using the currency and winking at the Swiss across the border. France could be considered the Ukraine of Western Europe, not great in and of itself, but a buffer between an arrogant nuclear state and the good people of the nascent mega state. It seems that we might be the bad company that the French are keeping!
It is no secret that successive British governments have pushed the UK further away from industry and further into laisse faire financial services, perhaps hoping to become the banker of the world. Perhaps the vision is a larger Switzerland but with 2 massive airports, a train to Europe and a cute great-granny wearing a sparkling hat! Sadly, without gold (thanks to Gordon Brown) without a reputation of neutrality and without large friendly economies at our borders, Britain turns out not to be like Switzerland at all. Quite the reverse actually, as we found out in 2008. Instead of the dumping ground of Europe’s wealth, Britain found itself as the main dumping ground of America’s worthless subprime empty promises. Britain had no more in control of the world’s economy than a pre-crash bank had control of the criminal loan companies using its books to guarantee financing for people who had no business buying a house in the first place!
Britain finds itself in a position where it has let go of one vine of wealth generation (production) and grabbed heartily onto a vine that is thoroughly rotten. In less than 2 decades after the fall of the Soviet Union, asset-less-production-less-capitalism it is driving people back towards the spectacular failure of an ideology behind command and control economies. This is understandable. Inefficiency and cronyism is better than fraud and cronyism. No matter how many people suffer from a horrible, cynical, out of touch idealism, they don’t feel as cheated because it’s being done with the best of intentions. It’s a false dichotomy of course, but without truly free markets and repercussions for failure, the alternative to these remains untested.
Putting all of that aside, Britain finds itself alongside many economies adjusting to a new world order. We don’t actually need lots of ships, we aren’t building lots of buildings and there is a country of 1.4 billion cheaply-paid, simple-living employees being used to (gently) dominate the world production economy. When China joined the world trade organisation (WTO) in 2001 the world had to reckon with it. The WTO, by chance perhaps, is also headquartered in Switzerland.
We cannot out-cheap China. If we build a massive kiln, China can build 3 bigger kilns for the same cost. If we turn all of our bankers into furnace smithies then China can find 20 times as many people begging for work around their factories. If we turn the midlands into farmlands China can turn an unused delta into the same farmlands. No matter how unsafe the Chinese factories might be and no matter how inefficient the workforce or arable area might be, we’re talking about a country the size of 40 United Kingdoms with the population the size of 23 United Kingdoms and the average income of 1/6th of a United Kingdom. These are very rough estimates of course but the numbers make the evidence startlingly clear.
Cold hearted libertarian that I am, I say, let the old UK steel industry die. We should not prop up a yet another failed industry especially one that we have no faith in. Britain for all of its folly and faith in financial instruments is still a country of innovation and ingenuity. If there are cheaper ways of making better steel for different products, we will find it. If there isn’t then well find other ways of producing physical things that China cannot make or leverage our reputation and position to produce more value added physical things. But we need to produce physical things. We cannot continue creating things that aren’t actual things and we cannot continue creating things that no body wants. At this point in time, Ukraine’s wheat fields are more desired by Germany than the UK’s banks and steel mills. The EU is very aware of China’s rise and it is closing ranks to remain relevant and self-sufficient. Until Britain once again becomes exceptional at producing a good that people want, we will have no say in Europe or the rest of the world. That good is not going to be steel. That’s why we must urge the government to double down on the value added products that make Britain unique and be done with propping up the manufacture of cheap commodities or fictional finances.