Tata Steel (part of Tata Group– an Indian multinational conglomerate) has decided to sell its entire business in the UK, threatening thousands of British jobs. The reason why we’re here is because we just cannot compete with China, causing Tata Steel to lose £1 million a day. According to a recent article by the BBC, there are- broadly speaking- five options. I want to discuss each option from a libertarian perspective.
Option 1: Sale
It’s not easy to find a buyer for a business which loses £1 million a day. And those who are negotiating are not offering enough money. From a libertarian perspective, this is the rational market response and it’s signalling something very important; i.e. the UK must not force itself in market where it isn’t efficient but rather focus its energy on where its strengths actually lie.
Option 2: Nationalisation
Supporters of this idea almost always talk about that nationalisation of banks during the recession as if that was brilliant idea; it really wasn’t! Basic economics teaches us about specialization and comparative advantage. Why we would want to keep alive an industry which is losing us money when we can reallocate our resources elsewhere which is more profitable is beyond me. But then again, British politics is more about what sounds good, feels good and receives claps at Question Time rather than what is rational and productive.
Option 3: Temporary Nationalisation
If Tata Steel faces immediate closure, supporters of this option argue that we should temporarily nationalise it until we find a buyer. It’s as nonsensical and irrational as the second option. If the industry cannot survive the market competition then keeping alive via taxpayer money is only going to help the steel industry at the cost of everyone else in the economy. Imagine if everyone who was about to go bust due to their inefficiency compared to China claimed taxpayers’ money. As ridiculous as it sounds, it’s completely plausible according to the above logic. If the banks, why not the steel, and if the steel why not….do you see the slippery slope?
Option 4: Government Support
As if the deficit in not large enough and we’re not in debt enough as it is, this option suggests that the government should help out by loans or loan guarantees. This will disrupt market signals, keep an inefficient market alive and, hence, cause market inefficiencies.
A side point before we move on: options 2, 3 and 4 require permission from the EU. If you’re going to be an interventionist at least don’t give up your sovereignty. Why do we need permission from a body which does not represent us and why should they have a say on how we run our country?
Option 5: Closure
According to the BBC, “This is the option no one wants, and which everyone fears”. From a libertarian perspective, there is nothing to fear and it isn’t a matter of want. The market chooses efficient outcomes (more so than any other institution). If Tata closes then the money and labour invested in steel would have to reallocate to more efficient markets. In the short term, yes, we will see some unemployment but in the long run we’ll know to invest our resources where we can actually compete. The option to artificially keep the industry alive is pointless and even more costly. What we need is a self-sufficient market, not one which depends on taxpayer money.