Britain’s economy can’t run on industrial nostalgia

Just because an area like Port Talbot one supported a particular industry like steel, there’s no reason the state must ensure it always does, says Eliot Wilson

When the government announced last month that it would give Tata Steel £500m to modernise its facility in Port Talbot, I noticed a revealing remark. The business and trade secretary, Jonathan Reynolds, declared that “Port Talbot has always been and will always be a steelmaking town”. It is hardly surprising that a Labour minister paid tribute to the industrial heritage of the movement’s heartland, but it raises a simple question: why should “has always been” mean “will always be”?

This is a strange basis for an economic policy. To say that an area has previously supported a certain industry and therefore should do so forever is ahistorical and antithetical to the notion of progress. It is as if a merchant said in the 1700s “Glasgow has always been and will always be a tobacco and sugar city”, shunning the economic potential of shipbuilding, railway engineering or steel. This mindset would have prevented the Industrial Revolution ever from happening.

Reynolds was selling a policy, but his words were not an isolated spasm of nostalgia. At both ends of the political spectrum, there are frequent complaints that the United Kingdom is undergoing “deindustrialisation”, sacrificing sectors of the economy for supposedly foolish or shortsighted reasons. If a traditional industry wanes, someone will always demand that the state steps in to help.

What has half a billion pounds bought in Port Talbot? It will allow the owners to replace the old-fashioned blast furnaces with a more efficient, flexible and greener electric arc furnace, avoiding the outright closure of the steelworks. But nearly 3,000 employees will still be made redundant as the plant transitions from coal to electricity and the workforce needed will be smaller – modernisation and increased efficiency generally entail smaller headcounts.

Let us be clear: Port Talbot continuing to operate as it had been was not a viable option. Tata was clear that, because of falling demand, rising energy costs and the availability of cheap steel from China, the facility was losing £1m a day. So the government has invested £500m to help an Indian-owned steelmaker (the 10th largest in the world) modernise a factory and prevent its closure. What are we actually buying?

Is steel a special case?

There is an argument that steel is a special case. In opposition, Reynolds argued that steel manufacturing is a “sovereign capability” and in extremis we cannot be reliant on imported steel to make weapons of war. This has some logic behind it, although it assumes that we would have no allies who could supply us: an Atlantic Council paper in 2017 questioned the assumption as it related to the United States.

If we are subsidising an otherwise-uneconomic industry for reasons of national security, then let us say so. But Reynolds previously claimed that “UK steel should have a bright future. It is not a sunset industry”. Then why was Tata unable to make Port Talbot profitable without half a billion pounds of taxpayers’ money? The government is actually paying to preserve jobs as well as maintain a capability, while destroying jobs elsewhere by requiring higher taxation.

The left and the right mourn the decline of manufacturing, for different reasons. But an industry does not disappear by accident, it does so because it ceases to be competitive. The UK’s great shipbuilding areas – the Clyde, the Tyne, the Wear, the Mersey, Belfast – were eclipsed in the 1960s and 1970s by competition from larger, more efficient and cost-effective manufacturers in the Far East. We were priced out of the market, partly because of rising wages and a higher standard of living at home.

When these economic shifts occur, there are two choices: subsidise or diversify. The UK is still the world’s 12th largest manufacturing economy, but comprises a range of industries: food and drink, automotive and aerospace, chemicals and pharmaceuticals, electronics. Yet there is a yearning for the industries our parents and grandparents knew, like coal, steel and shipbuilding. We sometimes seem to want to pay for an Industrial Revolution tribute band rather than nurture a contemporary economy which is profitable and world-leading.

The British economy cannot become a heritage item or an employment bureau

The British economy cannot become a heritage item or an employment bureau. We all live on the profits of British industry, which not only pay the workforce but provide the taxation which funds our public services. So nurturing economically viable businesses must be the key, rather than using the state to recreate a much-loved snapshot of another era. This should be self-evident, but we live in a time in which old verities must be relearned. A refresher course is no bad thing.

Eliot Wilson is a writer