2016-05-Editorial: Steel in Britain and Germany

Steel – A Tale of Two Countries.

On April 11th Community, the British steel workers’ union, welcomed the possibility that Greybull Capital might take over the Scunthorpe steel plant currently being sold by Tata Steel.  Roy Rickhuss the General Secretary stated

“We welcome this major step forward towards a deal which will continue steel making in Scunthorpe and secure the future of the Long Products business across the UK. Greybull’s interest in the business is testament to the skills, experience and commitment of UK steelworkers……Our members are still voting on temporary changes to terms and conditions that are the result of negotiations in difficult circumstances but, should our members vote to accept the changes, they will represent a significant contribution by the workforce towards turning the business around and giving it the best possible chance of success under new ownership.”

Actually the Scunthorpe workers were voting on a temporary 3% reduction in their wages and a change to their pension arrangements.

The same day, April 11th, Reuters reported that the German steel workers’ union IG Metall had led massive opposition rallies to an offer from the German steel employers to a wage increase of 1.2% when the union was looking for an increase of 5%.  Talking about the employers’ 1.2% offer Knut Giesler, the union’s regional director, said “This is not an offer, this is a provocation for all of IG Metall!”

How can it be that the workers in the steel industry in one EC country are grateful for the chance to vote for a 3% reduction in wages while those in another EC country are outraged that their demand for a 5% wage increase has not been met?  Therein lies a tale.

When Tata bought into the UK steel industry in 2007 through their purchase of the company Corus which had steel plants in both the UK and Holland their intentions were serious. The purchase cost of Tata Steel was £8 billion. But this was a world before the great recession. As the recession progressed the demand for steel dropped and by 2016 the excess of supply over demand was huge.  China which had invested heavily in steel plants is now dumping steel on the world markets at prices below production costs.

Other factors have also undermined Britain’s competitive position.  The UK’s energy costs are much higher than those of Germany and Holland because of a different treatment of energy costs for energy intensive industries. The UK’s business rate structure penalizes firms that are capital intensive. The UK’s exchange rate could sometimes make competing difficult. These difficulties have been carefully and comprehensively documented by the UK Steel industry’s division of the Engineering Employers Federation (EEF) and also by Community, the Steel workers’ union on their respective websites.  At a meeting on 16th October 2015 chaired by Business Secretary Sajid Javid representation was made on all these issues and UK Steel and the unions set out a list of 5 emergency actions requiring full and immediate action.  According to UK Steel “the Government took some steps – most notably it granted the Energy Intensive Industries Compensation scheme and has now changed procurement rules to ensure social issues are taken into account when procuring for major projects. But, of the five emergency steps, only one has been actioned fully, three partially and one not at all.”

The Labour party shadow Business Secretary, Angela Eagle, demanded a debate in parliament on the state of the UK steel industry. On April 12th there was a 3 hour debate on the issue starting with an introduction by Angela Eagle and a response from Sajid Javid.

In her opening remarks in the debate Eagle stated: ‘The complete absence of either a manufacturing strategy or an industrial strategy has hampered the Government’s ability to think strategically about what is needed, and never has it been more urgent that the Business Secretary does so.

This is accurate. One can talk about the individual policy changes that will help British steel producers survive the current difficulties. But the need for these policy changes has been evident for some time and argued for by the industry and the unions.  The government under the tutelage of the Business Secretary Sajid Javid has dragged its feet in making the required changes. The evidence suggests Javid would have happily let the existing market conditions decide whether a UK steel industry survived. However under pressure of public opinion the government has been forced to step in and agree to finance up to 25% of the cost of any rescue of the steel industry. However one wonders would this have happened if the Brexit referendum had not been on the immediate horizon. But is the current Conservative government behaving differently from previous Labour governments?

Angela Eagle may demand that the government has an industrial strategy but under the first Blair administration crude steel production dropped from 18.3 million tonnes (MT) to 11.5 MT, a drop of 37% in 5 years, before recovering in 2008 to 13.5 MT – still a drop of some 25%. This does not suggest that Labour had a particularly coherent industrial strategy around the steel industry. Once the Great Recession took effect production dropped to 11MT by 2010. It’s now less than 10MT.

In the same period from 1997- 2016 what has happened in Germany?  The picture that emerges in the statistics is one of continuous crude steel production of the order of 42-45 million tonnes per annum.  Only in one year, 2009, does production drop below 40 MT to 32.7 MT but it immediately recovers in 2010 to 43.8 MT and continues at that level throughout the Great Recession.

It is interesting to compare the websites of the German steel industry and the UK steel industry. What comes across in the German website is supreme self-confidence. The German Steel Federation see their industry as critical to the German economy and here to stay.  In contrast the UK Steel Industry website contains detailed useful information but is much more downbeat in tone. The annual reports have the air of an industry fighting an uphill struggle to survive and having to continuously argue that they should be supported by central government. Because of this lack of support from government Tata Steel UK eventually decided to abandon production in the UK and concentrate on production in Holland where they knew they would have state support.

A similar difference in tenor imbues the voices of the trades unions involved in the steel industry in the UK and Germany. In Germany 45,000 workers participated in the rally organized by IG Metall in support of their industry and wage claims on April 11th – the same day that the workers at Scunthorpe voted to accept a temporary 3% cut in wages. In the period from 1980 to 2016 although German steel production has remained constant at 43 MT the workforce has declined from 256,000 to 85,000.  Further job losses (euphemistically referred to as consolidations) are expected. But the attitude of IG Metall to what happens is forceful and authoritative. At the largest rally of some 16,000 workers outside the gates of the ThyssenKrupp plant in Duisburg the chairman of the employee representative council at ThyssenKrupp declared “In the consolidation of the steel industry, let’s not sit at the children’s table.”  At the same meeting Jorg Hofmann, Chairman of IG Metall stated “We have seen a lot of restructuring in the steel industry and that will continue. But it is only possible together with the workforce.” At the same meeting the German finance minister Sigmar Gabriel talked of how he had represented IG Metall for a long time on the supervisory board of the Salzgitter AG steel company. “At that time [1998] we worked to prevent the sale of Salzgitter AG and temporarily place it under state control in order to secure jobs,” said Gabriel.

This hardly sounds like what happens on the British Industrial scene. British trade unions do not sit on the supervisory boards of the firms for which their members work and they learn, after the event, what the future holds for them. Until this changes they will always be in the position of fighting rear-guard actions to defend the interests of their members.  Angela Eagle is one of Labour’s best parliamentary speakers and it’s excellent that she got the 3 hour debate in parliament but it’s too easy for her to simply demand ‘an industrial strategy’ in the current environment. Let’s hear her demand something seriously radical like workers on the boards of a re-organised steel industry and we may begin to believe that Labour is thinking seriously about an industrial strategy.