The crisis in British steel – a victim of capitalist overproduction

steelIn the last year, the UK has lost 39% of its steel industry, and now Tata’s decision to withdraw from Britain, abandoning sites that include Britain’s largest steel-making plant at Port Talbot, threatens to finish off the UK steel industry almost entirely. Tata steelworks in South Yorkshire, Northamptonshire and County Durham are also set to be put up for sale.

Tata’s decision is only too understandable, given that the UK’s economy is capitalist, and therefore businesses cannot survive for long unless they are turning a healthy profit:

Given the state of Tata Steel UK’s finances, it is a wonder the Indian conglomerate kept the operations running for as long as it did. The UK steel business is losing over £1m a day and since 2010 Tata has taken £2bn in impairments on the division. Annual pre-tax losses at Tata Steel UK more than doubled to £768m in the 12 months to the end of March last year, despite the business generating revenues of about £4.2bn. However, those sales were down 7pc on 2014 and were wiped out last year by nearly £4.5bn in operating costs, of which raw materials and consumables accounted for almost half ” (Ben Martin, ‘The deal that hamstrung Tata Steel’, the Telegraph, 3 April 2016).

This will in fact be just another in a whole series of recent steel plant closures, and thousands of steel workers’ jobs have already been axed across the country. The British steel industry that in 1970 employed 200,000 steel workers and produced twice the volume of steel that is being produced currently in Britain had already been reduced to 30,000 workers even before Tata decided at the end of March pull up stumps. In 2015 alone, 5,000 British steel workers’ jobs were wiped out:

“…[O]ne of the UK’s biggest steelmaking plants, at Redcar on Teesside – owned by the Thai company SSI [Sahaviriya Steel Industries – a Thai conglomerate] – went into liquidation last year after a century of production, with the loss of 2,200 jobs. Last year, Tata Steel also announced nearly 1,200 job losses at its plants in Scunthorpe and Lanarkshire. This comes on top of 720 jobs lost at the firm’s Rotherham plant in July. Caparo Industries, the steel products company that is part of Labour peer Lord Paul’s Caparo Group, has filed for administration , putting 1,700 more jobs in British steelmaking at risk. (Andosh Chakelian, ‘Steel crisis: why are UK steel workers losing their jobs, and what is China’s part in it?’, New Statesman, 19 January 2016).

The current prospect of the complete demise of steel production in Britain threatens the livelihood of some 30,000 families, most of whom live in areas of already high unemployment, although a small, rather dubious, ray of light is shed by the likelihood of a rescue, at least temporarily, of the Tata plant at Scunthorpe, on which agreement has been reached for its sale to Greybull, although the proposed terms are harsh:

“Greybull will only pay a ‘nominal’ fee [£1] for Tata’s Long Products Europe (LPE) division because it has agreed to take on the firm’s liabilities and put together a £400m funding package to keep the business going. A loan from the government on commercial terms could form part of this funding package….

“Trade union officials at Unite said proposals include a one-year pay cut of 3% and changes to their pension scheme, adding that the union has advised members to vote for the package. The changes to pay and pensions are part of the existing turnaround proposals put in place by Tata before it agreed the sale” (Rob Davies and Gwyn Topham, ‘Tata steel deal saves 4,400 jobs in UK’, Guardian, 12 April 2016).

If Greybull, whose methods of turning a profit have in the past been cavalier to say the least, is able to make a go of Scunthorpe, however, buoyed by the reduction of workers’ wages and pensions, it would, given current conditions of overproduction, merely be an exception that proves the rule, since undoubtedly the steel business is in extreme crisis throughout the world.

Steel overproduction is a world crisis not just a British crisis

“Worldwide crude steel output fell 3.6 per cent in the first quarter from the same period a year earlier, the World Steel Association, or worldsteel, said in a statement, taking production to 385.7 million tonnes [for the quarter].

“Production in China, the world’s biggest producer and consumer of steel, fell 3.2 per cent in the period. EU output dropped 7.0 per cent overall, with UK production plunging nearly 39 per cent.

“US steel output declined 1.3 per cent, but rises in other North American countries [sic] limited the region’s decline to 1.1 per cent. South American output plunged 14.1 per cent.” (Channel News Asia, 20 April 2016).

The fall in production reflects the fall in the price that is the necessary consequence of overproduction which is occurring despite the fact that worldwide steel production is only averaging 70% or so of capacity. Since July 2008, world export prices for steel have fallen more than 70% from an all-time high of $1,113 per tonne to just $321 in March 2016, according to the website Only a year ago the price was $500 a tonne. Yet despite low prices, demand for steel worldwide contracted by 3% in 2015 and is expected to contract still further in 2016.

An important factor in the falling demand for steel has been the bursting of the housing bubble in China which has severely affected what had been a massive and exuberant demand for all kinds of building materials, including steel. Overproduction of housing has left China replete with unsold housing stock.

Because of this, not only is China not importing as much steel from abroad but it is also flooding the market with its own steel products that it can no longer sell at home. Although apologists for capitalism seek to blame the collapse of the British steel industry on China ‘dumping’ its surplus steel on the world market, in actual fact it is the oversupply of steel in the world as a whole which is bringing the price down – an oversupply for which China is no more and no less to blame than any other steel producing country. In actual fact, only 6M tonnes of the 100M traded within the EU come from China. So although the complaint is that British jobs are being lost because too much steel is being imported from China, the real complaint is that Britain is losing out in exports of steel because the market is flooded. There has been a great deal of condemnation of the British government for not slapping import tariffs on Chinese steel (such as the 236% tariff imposed by the US), or supporting to EU in doing so, but it seems fairly clear that the volume of Chinese steel imports into the EU is so low that there is far more to lose from the probability of China imposing retaliatory import controls on EU exports in general and British exports in particular than could possibly be gained from such an action. In addition, other sectors of British manufacturing benefit from cheap Chinese steel imports.

Job losses worldwide

Because of overproduction of steel, it is not only British steelworkers who have lost their jobs but steel workers all over the world. As the world’s largest steel producer, it is China which has lost by far the most steel jobs.

“Grim news from South Wales about the possible closure of the Tata steelworks has focussed press attention on China’s steel industry once again.

“In China, however, the 4,000 job losses in prospect in Port Talbot are dwarfed by the potential for 400,000 in forthcoming years. For every Welsh steelworker currently facing redundancy there are 100 Chinese workers in the same position.

“The problem, moreover, is the same everywhere. In Australia, the second largest steelmaker – Arrium – is on the ropes, with nearly 7,000 jobs at risk, and worldwide there are idle steel furnaces and redundancies across the board.” (Dougas Bulloch, ‘How China’s steel makers export the Five Year Plan and undermine market forces’, Forbes, 12 April 2016).

Forbes underestimated. In fact, China has already announced plans for restructuring its coal and steel industries which it says will cause the redundancy of some 1,300,000 coal workers and 500,000 steel workers over a period of time. The ‘small’ difference between the redundancy plans of socialist China with those of, say, the UK, is that the government of China is committed to finding alternative employment to all those who are ‘let go’ from their former employment.

The world needs steel

Yet the products of the steel industry have never been more necessary to the development of the modern world, whose infrastructure, transport and machine tool requirements are urgent.

The mainspring of capitalist production is not the needs of society, however, but the needs of the capitalist to make the maximum profit.

Since the late 1970s, when the re-emergence of a crisis of overproduction began to choke the market for many commodities, including steel, sharpening competition between rival producers around the world has resulted in the widespread plant closures and lay-offs we now see unfolding.

A half-century of decay

The real cause of the collapse of Britain’s steel industry, along with mining and other former economic mainstays, lies in the decades-long failure of successive British governments, both Conservative and Labour, to invest enough in modern production methods to be able to compete successfully with rivals abroad.

As the scale of global production has outstripped the purchasing power of consumers, the less ‘efficient’ producers (those who have not sufficiently modernised their production methods) can no longer sell anything at a profit and go out of business.

We should note, however, that even if sufficient investment had been made and modern production methods had been fully applied, the end result would still have been bad news for workers, who would find themselves expelled in droves from modernised factories needing far less manpower.

It is clear that whichever way capitalism tries to manage its own contradictions, it is the working class that suffers the consequences – unless and until it learns to overthrow capitalist rule and build socialism.

The decay set in long before China had become the major steel producer that it is today.

In fact …the greatest number of job losses in British steelmaking came in the 1960s, 1970s and early 1980s – years during which Britain’s post-war industrial decline claimed millions of jobs right across manufacturing and heavy industry” (Ian King, ’50 years of decline for UK steel industry’, Sky News, 20 January 2016).

Moreover, ” The biggest drop in employment in the sector came between 1978 and 1981, a period marked by countless industrial disputes, when the number of workers fell from 271,000 to 167,000.

“The nadir came when, in 1980, British Steel reported a loss of more than £1bn, then a record for a British company. …

“… Scottish-American industrialist Ian McGregor – later to achieve notoriety at the National Coal Board – [implemented] a sweeping rationalisation of British Steel … in which loss-making plants were closed and almost 90,000 jobs were cut.”

Steel production in Britain that year fell to 11.5M tonnes, less than half of what it had been in 1967. A strike to protect workers’ livelihoods was betrayed by the Labour and trade-union leaderships and defeated, and never again did steel production in Britain come anywhere near 1967 production levels.

Mass steel production in Scotland effectively ended with the closure of the Ravenscraig plant in 1992, despite a protracted struggle by the workers and their local communities. So vital had the plant been to local life that the town of Motherwell had been popularly nicknamed Steelopolis

This wilful destruction of a once-thriving steel industry by a parasitic imperialist ruling class occurred long before China, or any other developing country, was a significant steel exporter.

When the likes of Jeremy Corbyn attempt to outflank the Tories from the right, demanding that the government “stand up to China” on the steel issue, they not only fuel social-chauvinist attacks on a developing socialist country that was once the plaything of British imperialism; they also prevent the class struggle of British workers from even getting off the ground by presenting our friends (the socialist countries and workers in other countries generally) as enemies and our enemies (the British ruling class, the EU and imperialism generally) as friends.

British government response to the crisis in the steel industry

It should not be thought that the British bourgeois government is indifferent to the loss of Britain’s steel industry, which would be a blow weakening the British bourgeoisie, not only a blow to the thousands of workers who lose their jobs both in the steel industry and in the companies that service it.

Graham Ruddick in the Guardian of 8 April 2016 points out: “The IPPR [Institute of Public Policy Research ] said that if 40,000 jobs are lost at Tata and the rest of the steel industry as a result of the crisis, this would cost the government £2.2m a day in the first year. The figure includes the loss of income tax and VAT, and additional benefit payments ” (‘Tata Steel: potential Port Talbot bidder says he is yet to decide on offer’). This is not a prospect that the British austerity driven government can willingly face, as a result of which it is prepared to do almost anything to try to stave off this fate.

It has already managed to persuade the Tata management (for an undisclosed consideration) to allow Port Talbot at least a few weeks’ grace in order to find a buyer or buyers, and it is seriously considering part nationalisation, at least to the extent of 25%, in order to tempt prospective buyers to come forward – even though to do so would be a breach of its EU and WTO obligations.

And again, although this too would be a breach of EU and WTO obligations, it will also in all probability have to take on the company’s pension obligations as various bits of the Tata business are sold off leaving Tata Steel itself holding the pensions baby:

The huge British Steel Pension Scheme could also prove an obstacle to any rescue. The scheme has approximately 130,000 members and liabilities approaching £15bn, although the deficit was reduced to £485m last year. Tata could still be forced to make a contribution, or the Government could step in ” (Ben Martin, op.cit.). It should be emphasised that if the government’s Pension Protection Fund does take over this pension liability (which it would have to do if Tata Steel went into administration, for instance), pensioners would lose 10-30% of their entitlements.

Workers are told by Unite that “together we can save our steel”. But what does this mean?

If it means that by putting pressure on our capitalist government we can reverse the half-century of decline, then it is just whistling in the dark. Worse, it is encouraging workers to identify their class interests with those of the capitalist at the very moment when the state is making its preparations to crush working-class resistance to deepening austerity.

In hard reality, there is only one way to save the steel industry in Britain, and that is to fight class against class with the strategic objective of establishing the rule of working people and putting paid to the concept that the sole purpose of economic activity is to produce profits for the rich. It is only when the working class has seized power that it can institute a rational economy in which the sole purpose of production is to satisfy the material, intellectual and spiritual needs of society, that it can protect an essential industry that is not profitable. This cannot be achieved through the vagaries of the market but only through a planned socialist economy geared to serving the interests of all workers – not only in this country, but throughout the world.

The history of the USSR shows us that under a planned economy, steel (and everything else) is produced for need rather than for the market, and any workers no longer needed in one area of production are retrained for other useful work, without ever facing the prospect of homelessness or the dole. Moreover, modernising production methods and achieving greater productivity lead not to unemployment but to a gradual lessening of the working day for all.

Yes, we demand the nationalisation of what remains of the steel industry, and we demand full compensation and retraining for those laid off. But we demand these things not as ‘left’ camouflage for the pernicious slogan of ‘British jobs for British workers’, but as a first step in the direction of ending capitalist class rule for good.

Let the slogan of the British proletariat be: