Tata, the giant Indian-owned conglomerate, has announced the closure of its steel plants in Scunthorpe and Scotland, with a resultant 1,200 jobs to be cut. This latest episode in the crisis of the British steel industry is yet another stark reminder of the decrepit nature of British capitalism and of the contradictions within the wider world economy.
Although various factors have been mentioned by Tata for the decision to close the steelworks – including an unfavourable exchange rate, high electricity prices, and carbon taxes – the real culprit is clear: the huge fall of steel prices globally, due to enormous levels of excess capacity in the industry worldwide.
Many are pointing the finger at the Chinese, who are “dumping” their excess supply of government-subsidised steel onto markets in Europe, Britain, the USA, and beyond, thus pushing steel plants in these regions out of business as they struggle to compete with what has been described as a “tsunami” of below-cost metal.
As the Financial Times (20th October 2015) commented:
“Already buffetted by a strong pound, high electricity bills and environmental taxes, British steelmakers have seen global prices for the metal collapse by 25 per this year amid a flood of cheap imports, many of which they allege aredumped onto world markets by subsidised Chinese producers.”
The Tories, keen not to insult Xi Jinping - the Chinese leader - on his current state visit to the UK, were quick to downplay the role of the Chinese government in helping to depress world steel prices, with Sajid Javid, the Conservative business secretary stating that “no government can change the price of steel in the global market. No government can dictate foreign exchange rates and no government can simply disregard international regulations on free trade and state aid.” David Cameron, the Tory Prime Minister, meanwhile, has claimed he will "raise the question" of steel dumping with his Chinese counterpart.
Those affected by these closures and job cuts, however, are not satisfied with the response from the Tory leaders, who have for years talked about creating an industrial “powerhouse” in the north of England and leading the “march of the makers”. As Charlotte, a 25-year-old apprentice at the Tata steel plant in Scunthorpe, told the BBC:
“The anger is directed at Prime Minister David Cameron…The trade unions and our company have made suggestions to the government on how they can help, but they did not act.”
Meanwhile, Kevin Brennan, the shadow business secretary, stated that:
“They [the Tories] seem content to let Britain’s steel industry disappear in the face of Chinese dumping. While the Chinese president is riding down the Mall in a gilded state coach, British workers are being laid off because our government is not standing up for them.”
Whilst Roy Rickhuss, general secretary of the steel union Community, said that:
"The government should hang its head in shame. It is not enough for David Cameron to "raise" the issue of steel dumping with the Chinese, he should be telling them what action he will be taking to stop steel dumping.”
The hypocrisy is clear: the banks and financial houses will be bailed out, no matter what the cost to the taxpayer; but this government of the rich will quietly stand aside and shed crocodile tears as jobs are shed and British industries go to the wall.
He who holds the purse strings…
Unfortunately for Charlotte and others affected by the crisis in the British steel industry, Cameron and co. will do nothing to challenge the Chinese government on the issue of steel dumping, or on any other questions where there is the potential for disagreement.
Britain today is now a second-tier player on the scene of modern geo-political relations. Far from being in a position of power where he can make demands of Mr Xi, Cameron must play obedient servant to a leader whose attention he is attempting to court. For whilst the British steel industry is imploding, Cameron and Osborne are working hard to please Xi on his state visit to the UK in the hope of securing over £20bn in trade deals and investment, and thus bringing about a "new golden era in Sino-British ties".
On the one hand, these latest events demonstrate the rising influence of China on the world stage. China’s increased economic weight has already begun to pull several countries in its locality out of the orbit of the US and into its own sphere of influence. More recently, the Chinese announced the foundation of the Asian Infrastructure Investment Bank (the AIIB), which is designed as a rival to the American-dominated World Bank.
Despite the obvious intentions behind the AIIB, countries that have been traditionally considered US allies have signed up to the AIIB, including Britain. The Americans were quick to express their disappointment at what could only be considered a betrayal of the “special relationship” by their good friend across the Atlantic - a formerly reliable stooge for US imperialism and its designs. These current attempts by Cameron to forge stronger economic links with the Chinese will be another bitter pill for the Americans to swallow.
The decline of British capitalism
On the other hand, the fact that the British ruling class must now kowtow before the Chinese leaders also highlights the ongoing decline of British capitalism. Whereas Great Britain had once forced down Chinese walls with gunboats and opium, it is now the UK leaders who must submit to the will of their former subjugates. The British Empire is long gone; instead, the Prime Minister finds himself in charge of a country that can barely keep itself together, with mutiny in the Tory ranks over the question of Europe and the potential for the “United” Kingdom to fall apart as a result of Scottish independence.
The century-long decline of British capitalism is reflected in the increasingly parasitic nature of the British capitalist class and the resultant terminal decline of British industry through decades of neglect. Instead of investing in new machinery and technology in order to increase productivity and maintain competitiveness on a world scale, the British capitalists have become incredibly short-sighted and have based themselves almost exclusively on finance, speculation, and the export of capital abroad.
This is why, following privatisation, formerly-nationalised British industries failed to keep up with the intensified competition provided by globalisation and the opening up of China to capitalism. And this is why the bosses and their political representatives do nothing but wring their hands at the news of British steel’s death, content in the knowledge that they can continue to profiteer from the rentier economy they have created.
Complaints about Chinese steel dumping and demands to protect British jobs and industries are all well-and-good; but the reality is that “British” industries have not been British for some time, as the British capitalist class have withdrawn from real production in favour of the extravagant casino gambling taking part in the City of London. Meanwhile, the vacuum has been filled by the capitalists from former colonies and emerging economies, such as the Tata Group itself and SSI, the Thai-owned company that ran the now-closed steel plants in Redcar, Teesside. But even these businesses cannot compete with the global forces that have been conjured up in this new era of economic instability and geo-political turbulence.
Contradictions and tensions
In many respects, Sajid Javid is correct: there is little that governments can do to affect global steel prices. Or at least this is true in the case of Britain, which is a small player on the world market for commodities such as steel. The same cannot be said, however, for the case of China, which is very much able to send tremors across the world when it comes to the price of raw materials and other important commodities.
Not only has China built up a huge demand for coal, steel, etc. over the years as a result of its rapid economic growth and its post-2008 large-scale Keynesian investment into infrastructure and construction; at the same time, large amounts of investment have been poured into developing the Chinese steel industry, with government subsidies provided to insure that infrastructure projects had access to an abundant supply of cheap metal. As a result, China is now the world’s biggest steel producer, making nearly half the world's 1.6 billion tonnes of steel.
Now, however, the economy is slowing down as the Chinese leaders try to “rebalance” the economy away from investment, causing this internal demand for steel to quickly fall. But the Chinese government is unwilling to wrap up Chinese steel plants, and is instead “dumping” the excess supply onto the world market. As the Financial Times explains:
“There are limits to what the [British] government can do…Analysts say an overcapacity of steelmaking plants combined with the economic slowdown in China, the biggest consumer of steel, has led to a massive supply glut that can only be solved by further closures. Global demand is forecast to contract by 1.7 per cent in 2015.”
The Wall Street Journal (20th October 2015) elaborates further:
“At the heart of steelmakers’ woes isoverproduction in China, which since 2000 has built upmassive steelmaking capacityto supply its appetite for bridges, cars and apartment blocks, and to offer stable employment in far-flung regions. The country now produces more steel than any other nation ever has, and its economic growth is slowing.
“Chinese steel demand is expected to drop to 685.9 million tons this year from 714 million tons in 2014, according to forecasts published this month by the World Steel Association. Meanwhile, Chinese mills are on pace to produce 811 million tons of the metal this year.
“The unsold Chinese steel is being shipped abroad, pushing prices down. In the first eight months of 2015, Chinese steel exports rose 30% to 64 million tons. That is more steel than any country, save for Japan, produced during that time.
“… ‘Chinese overproduction is an explosive force which is hurting everything,’ saidWolfgang Eder,CEO of Austrian steelmakerVoestalpine AG.”
The origins of this excess capacity of steel, therefore, lie in the attempts by China to avert the crisis of capitalism in 2008 through a binge of credit-fuelled Keynesian stimulus. Previously reliant on exports, the Chinese government was forced to keep the economy going through internal investment as demand abroad for Chinese commodities collapsed during the recession.
The impacts of the global crisis were not avoided, however, but merely delayed. All this government-led investment has only exacerbated the contradiction of overproduction, both in China and on a world scale. This is shown not only by the accusations levelled towards the Chinese of steel dumping, but also by the recent crash of the Shanghai stock exchange. Surrounded everywhere by saturated markets, all the profits that have accumulated in China over the years could not find an outlet and were merely inflating asset prices and creating bubbles. Now these bubbles are bursting and the Chinese slowdown is threatening to bring about a new world slump.
Other big emerging economies, such as Brazil and Indonesia, reliant for years on exporting raw materials to fuel Chinese growth, are grinding to a halt also. The crisis of the euro zone, meanwhile, continues unresolved. And the enormous debts from bank bailouts in the USA, UK, and Europe continue to hang like an albatross around the necks of the advanced capitalist countries, severely limiting the tools available to the ruling class to get out of the next recession.
Beggar thy neighbour
It is not only the British steel industry that is threatened by Chinese competition. According to some industry estimates, less than 50% of steel producers worldwide are currently profitable, due to oversupply from China, lack of global demand, and resultant low prices. Steelmakers across Europe have complained of Chinese dumping practices, and at least two major American steel producers are in the process of cutting jobs or mothballing plants, with many more expected to follow suit, despite attempts by the US government to intervene. And as the Wall Street Journal comments, “The effects aren’t constrained to Europe and the U.S. In India, steel imports surged by 50% between April and August, compared with the same period in 2014, with most of the extra steel coming from China.”
Indeed, the talk everywhere now is for government action to protect jobs in the steel industry from Chinese competition. Not all calls for government intervention, however, are made for the same reason: the bosses demand them in order to protect their profits from their international competitors; workers and labour movement representatives demand action to protect jobs and local communities. (But can we really expect a government such as the Tories who are hell-bent on attacking workers to show compassion and benevolence to those who now face unemployment in Scunthorpe, Scotland, Teesside, or anywhere else?) It is the capitalists, therefore, who want wish for trade barriers to be erected and tariffs to be imposed on Chinese steel imports.
The potential for such protectionism is yet another sign of the contradictions within the world economy and the instability in the global capitalist system, as each country seeks to export the crisis elsewhere, at the expense of its neighbours.
The call from the labour movement, in contrast, should be for the books of the major steel companies to be opened up to the trade unions, so that workers can see for themselves what the costs and profits in the industry are. Those plants that are threatened with closure should be nationalised, without compensation, and placed under workers’ control and management.
Such demands are far beyond what is currently put forward by the major trade union leaders, who talk only parochially about the protection of British jobs. Nowhere is the narrowmindedness of these union leaders shown than by their opposition to the abolition of Trident – the UK’s nuclear arsenal – on the basis of protecting jobs in the nuclear weapons industry; as if we couldn’t find enough jobs in construction, green energy, healthcare, and education with the £100bn or so saved by getting rid of Trident!
This hits at the crux of the issue though. Under capitalism, the protection of jobs in one industry – even through nationalisations – merely means subsidising one sector at the expense of another. Workers understandably demand such protection of their jobs, because they can see from examples such as the coalminers in the 1980s what happens to local communities when major industries are left to the dogs of global competition and the anarchy of the invisible hand.
In the final analysis, you cannot plan what you don’t control; and you cannot control what you don’t own. Nationalisation of threatened industries must only be the first step towards public ownership and democratic control of all the major levels of the economy – including the banks and the big monopolies – as a part of a socialist plan of production.
Only in this way can we provide full employment and a decent wage for all. Only through a rational and democratic plan of production can we guarantee a job for everyone and ensure that workers are provided with the life-long education and training that is needed to develop new skills, move into new industries, and use new technologies. Only with the socialist transformation of society can we ensuring that the resources we have in society are used to meet society’s needs, and not to simply line the pockets of the 1%.
An epidemic of overproduction
The economic slowdown and excess capacity in China are only one side of the equation. The question must also be asked: why has the demand for steel everywhere collapsed? The same question must be posed in relation to oil and other commodities that have seen a decrease in price in the recent period.
The fact is that for years now, the price of all of these important commodities – and the growth of the countries that supplied them – was maintained almost exclusively thanks to the Keynesian-fuelled economic expansion in China, as the rest of the world remained stuck in the swamp of stagnation. Now the global crisis has reached China, and the last remaining vestige of worldwide demand has dried up – hence the danger of deflation and the re-emergence of all the contradictions and tensions within the world economy, only on a higher level than before.
As Marx and Engels noted in the Communist Manifesto:
“Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells…
“In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production…and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce.
“The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them.
“And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.” (our emphasis)
Capitalism cannot utilise the enormous productive forces at society’s disposal. We live in a society where superabundance exists under our noses; and yet for the 99%, this means nothing but cuts to jobs, wages, pensions, and public services. It is time to sweep away this rotten system once and for all.