The British steel industry has been at crisis point since last month, when Indian based steel company, Tata Steel, announced it’s plan to close down its steel plant in Port Talbot in Wales. With the prospect of 40,000 British steel workers suddenly losing their jobs, politicians, the media, and the public are all very understandably anxious. However, this understandable anxiety has resulted in many people arguing that the Government of the United Kingdom should nationalise the industry and have blamed free market capitalism for the problems facing the UK Steel industry. However, as we will see, such views are misguided.
An argument proposed by those in favour of the nationalisation of the Tata Steel plant, is that the British steel industry is strategically important to the UK economy. Although it is certainly true that the steel industry is important to a small selection of local areas, it cannot be argued that it is important to the UK economy as a whole. For example, in 2014 the total output if the industry was £2.2 billion, this represents a measly 1 per cent of manufacturing and only 0.1 per cent of total UK output. The steel industry in the UK has been in decline for decades and is responsible for just 0.7 per cent of global production. It is patently clear that British steel cannot even claim to be a player in the global steel industry.
A further argument given for why the UK Government should intervene to save the steel industry is because it is important for national security. Even if one accepts the premise that the UK Government should be heavily investing in its armed forces, it is not clear why the UK would need domestically produced steel to do so. For example, the recent construction of two Royal Navy aircraft carriers required only 82,00 tonnes of steel, several thousands of which were imported into the UK. Furthermore, steel is no longer strategically important for national defence. It is not 1898, thankfully the UK is not in a naval arms race requiring huge quantities of steel to build more and more dreadnoughts. It is actually the IT and electronics industries which are strategically important from a defence perspective, not steel.
A further argument against nationalising the UK steel industry is because steel is so readily available- and therefore cheap to buy- from other countries, most notably China. Many countries around the world are producing so much steel, in a cost efficient way, that many British companies can buy it at low prices thus increasing their profits, boosting investment, and and increasing jobs in other sectors of the UK economy.
Furthermore, the current estimates suggest that the Tata Steel plant is losing £1 million every single day. As a result, the price of nationalisation would be astronomical. It is a bill that would be paid for at the expense of essential services or by increased taxes or even more borrowing.
As for those who claim that this problem is the result of the failures of free market capitalism are also hugely mistaken. They argue that it is capitalism and globalisation that are to blame- pointing to the actions taken by the Chinese Government to support its steel industry. They then argue that the UK Government should impose higher tariffs on Chinese steel and should nationalise the UK steel industry. Such an argument represents a breathtaking level of either ignorance of hypocrisy (or possibly both). Yes, one of the reasons the UK steel industry is under threat us because of the actions of the Chinese Government. However, this is not free market capitalism-it is state intervention in the form of Chinese protectionism. They then argue that the UK Government should take a more protectionist stance- in other words, they advocate that the British Government should do the very thing which they have criticised the Chinese Government for doing and which they have erroneously described as free market capitalism.
Furthermore, another reason that the UK steel industry is struggling is not because of the free market, but rather due to its absence. UK producers have been brought to their knees by crippling and ineffective environmental measures implemented by the UK Government. This has resulted in industrial electricity prices reaching levels of more than 50 per cent higher than in any other major economy in the European Union. Therefore, it’s an overreaching British Government, and not the free market, that has contributed to the decline of the UK steel industry.
As a result, it is clear that the UK Government does not need to nationalise the British steel industry- not least of all because it makes no sense to do so and would cost an absolute fortune. It is not the free market which is to blame for the decline of the UK steel industry, but rather it is the fault of government interference.
Ben has worked in investment banking and management consultancy and has an undergraduate and advanced degrees in law, economics, and history. Follow him on Twitter: @BenRamanauskas
The views expressed in this article are that of the author and do not necessarily reflect the views of Conservatives for Liberty