Let us think the unthinkable and bring the UK steel industry to the market and make a profit for the taxpayer. The market could do with a big cyclical play…
Government in a changing and unpredictable world should be pragmatic. I say that in relation to the future of steel production in the UK. The FTSE 100 Index has a fair chunk of activity that uses steel. The industrial goods and services sector, utilities, construction materials and telecommunications constitute one fifth of the index by market capitalisation, to say nothing of motor vehicle production, which is largely foreign owned. Can we really have a defence industry based on unaffordable (in national accounting terms) imported steel? The government clearly has problems in reducing the nation’s external trade deficit, and this would be one way of preventing it from getting worse – and perhaps even make it a little better by increasing the prospects for some export as well.
Would it not be sensible and useful for Her Majesty’s Government to see the return of steel production to the stock market, following a period of state ownership and proper whole-hearted investment, if all else fails? With a balance of payments deficit of about 5% of GDP (and worsening), we simply cannot afford to import steel along with the vegetables of which we bizarrely do not grow enough.
I suggest that the UK has all the ingredients: finance, financial skills, university know how, renewable energy and management for a state owned entity to take over Port Talbot and rebuild it as a state of the art company (including no doubt its own sources of built in, propriety wind and wave power energy) that in due course could be floated on the market at an appropriate multiple of earnings.
I understand that something on those lines has been proposed by a department of one of our leading universities. The thing that stands in the way is a weak-willed political dogma – more doctrinal fatalism than enterprise government, I would suggest.
In contrast, in our bustling, scientific world of modern ‘political economy’ – the famous political ‘art of the possible’ combined with the economically desirable – we are expected to change our minds when circumstances dictate. That is at the very essence of market economies and good government. Businessmen in markets do it all the time. Politicians, as ever, if they do it at all, do it slowly, for fear of attracting ridicule and losing influence, power and prestige. Worst of all is to be accused of inconsistency. Yet, sometimes, inconsistency is a life saver.
The loss of profit is a more powerful inducement to change than the loss of argument is to a politician. In that respect, the latter is more like a religious state of mind than the former. That appears to be one of the attractions of Donald Trump to the ordinary blue-collared ‘Jo’; the fact that he is not seen by them as a politician but rather as a mind-changing businessman. And that of course is why so many career Republican politicians detest him; because they know that he is not truly dogmatic – as they are – but an enterprising, likeably roguish (unless you are a female Mexican contemplating crossing the border for an abortion) diver and dodger; a kind of hugely successful, rich, golf course and hotel owning American Del Boy Trotter.
Investment by government bearing the tax payer in mind seems just the ticket now that a recent economic forecast suggests that the Great British consumer may run out of money or interest to keep our consumer economy on the road. Business investment (or investment in business) is getting rather crucial to the critical mass of the UK economy. The problem is that the track record of business undertaking such investment has been extraordinarily poor for years.
Governments should be run like enterprising business, not like a religion. Keynes, the empirical and pragmatic share-dealing economist, is reported to have responded to a politician complaining that he had changed his mind: “When the facts change, I change my mind. What do you do?” I add, for sake of a good story, the occasion when Keynes replied to a cable from Churchill saying that Churchill was “coming around” to Keynes’ “point of view”. Keynes famously replied, “Sorry to hear it; have started to change my mind.”
There was an understandable knee-jerk reaction on the part of government spokesmen to reject all ideas of “nationalisation” with the same passion that the Archbishop of Canterbury or the Pope would reject sin, despite the fact that they were confronted with the prospect of yet another indigenous British industry that looks as though it is about to bite the dust. The news reminds us how inconveniently and rather worryingly dependent the UK has become on a decreasing number of industries – a reality reflected in the chronic headline grabbing balance of payments problems and our unnatural dependence on banking.
Only months ago, financial journalists were almost (quite wrongly) writing off Rolls-Royce. That sent a shiver down many a spine. The UK cannot do everything, nor should it wish to do so. The economic ‘law’ of comparative advantage is rational! However, the hard pragmatic fact remains that we need to be careful with our industries. As Lady Bracknell would have said, to lose one’s industry is unfortunate; to lose two or more looks like carelessness. Had she still been with us, what a wonderful addition she might have made to the current cabinet! Except of course, she would expect it to be made up exclusively of ancient bloodline nobility.
We have the impending, almost total, loss of North Sea oil production (which replaced domestically produced coal that is now gone and is in any event unthinkable now); the earlier disappearance of the British nuclear power design and construction industry (in which we were, not long ago, both the originator and world leader an industry again sacrificed because of oil and gas); and the total loss of merchant shipbuilding (some of which went to France and Italy, where they still do some of that sort of stuff).
The result is a seemingly now narrow industrial base from which to earn our bread of foreign exchange – as demonstrated by our debilitating, seemingly incurable balance of payments problem, which has now reached over 5% of GDP. Can we truly afford to run any risk of losing steelmaking too?
Government equity investment in steel would be a legitimate political manoeuvre as a means of underwriting the long-term national interest of the UK as the fifth largest economy in the world – but one that is reportedly ranked only 27th in terms of GDP per head. Nationalisation has its limits, but it also has its uses in areas where private/public capital does not wish to go because the risks may be too long-lasting and the returns too distant for most company balance sheets and cash flows. A government can borrow money very long term at low rates – and they do not get much lower than they are now.
If a sensible deal cannot be done to acquire Port Talbot in a way that preserves our national economic interest, I look forward at some future date to a prospectus offering government shares in a really efficient Port Talbot Steel Company, offering a good sterling dividend yield (something else in short supply) aimed at long-term British pension funds (including the steel workers’ pension fund itself, which is reported to be pretty well funded) and private investors who need that kind of thing. That would also contribute to our trade balance and the Treasury tax revenue account.