What interference in the Economic process does

There is a very good argument for NOT having changes of government from right to left and back again. In the UK we are quite used to it and we fondly believe that the Civil Service provides the continuity to Government. If you’ve ever watched “Yes Minister”, which, despite being a comedy, is horrifyingly close to the truth, you will know that “The Blob” as it is nicknamed has a completely different agenda. Far be it for me, a mere Economist, to suggest that that agenda is aggrandisement of their own departments and concentrating power in their hands. You can form your own opinions.

The British steel Industry forms an extremely exact narrative of what happens in this country. In case you have forgotten, or never bothered, we start post WW2 with quite a number of steel plants of different types, but all largely suffering from underinvestment as what was required during the war was flat out production. Attlee’s government had an ideological dislike of various important industries like steel and coal, as well as trains, as they were all perceived as being owned by Big Business and hence inherently anti their own large numbers of workers who were all pretty much union members. The basic problem as I have already said is that after the war all these industries – and others - were in very poor shape with outdated machinery and no management incentives to improve. Sticking to steel, the industry was nationalised in 1949 to great acclaim.

The problem was two fold. There was still no money to modernise – those years after WW2 were characterised by Brits wondering who it was that actually won the war – and the industry itself was sure that when there was a change of government, they would be de-nationalised.

And so it proved. The Tories got back in in 1951 and promptly split the industry into its constituent pieces again in 1953. This ushered in a period of relatively better performance as there was no change from right to left until 1964, when Harold Wilson’s first government took office. Sure enough, the industry was renationalised in 1967. Nothing much happened despite the Tories winning in 1970, but they lost (twice) in 1974. The problem of course is when the State is your only shareholder, in practical terms they are the people who have to give you money to invest, and the good old Treasury is very loathe to let any money escape its clutches.

We move on to 1988 when once again privatisation headed the agenda  under a Tory government. And here we are in 2025 with a new proposal to renationalise the industry once again, though arguably part of that has already happened.

Over all these years, the industry as a whole has been in decline. Sorry, that’s not quite right. In China it has grown enormously so that now China accounts for 54% of world steel production. The UK now produces 0.3%. We started the industry initially.

All the reasons for this are directly linked to meddling from outside the industry. Why would you invest when your owner is the government and won’t give you the money? The state doesn’t want to invest in steel production (not a lot of votes in that, is there?) When investing reduces your immediate pay-back and you might be renationalised? When technology is running away from you? When you have the highest energy costs of any steel producing nation – and that’s a political decision too. When cheap subsidised steel ruins your market and no one will do anything to help. It is sins of omission as well as of commission that have destroyed what was a huge, large industry and work force.

British steel making is now reduced to an irrelevancy. Even the Americans, with their Rust Belt have done much better, largely because they allowed market forces to make things work. Although down about 2.5% year on year, broadly in line with world production, they produced around 88 million tons of steel, and were globally the third largest producer. They have been undergoing technological improvements and investment for a while and will for sure make it pay. They imported steel to the tune of 22% last year though generally not specialist steels. In case you are wondering number 2 was India.

It is easy to see that the 5 changes ( assuming the 2025 version holds) has done absolutely nothing to assist what was a huge industry. As an economist of much more significance than myself has said “Meddling in a process for whatever reason costs money, time, management resources and seldom produces anything worthwhile.” I respect of the steel industry this is doubly true.

Could things have been different? Very definitely. As long ago as President Bush 1 the US imposed tariffs on steel to protect their industry. We, however, shackled by Europe, had to allow German steel (and the rest) free access and couldn’t do anything to stop the flood from elsewhere ruining our industry. Arguably, our negotiators missed a trick here, but hey, they missed lots. If we as a nation had NOT gone for the service industry meme we might have done better in manufacturing. As of now, FIRE industries (Finance, Insurance, Real Estate) account for more than 60% of all investment in the UK. And that takes account of Tech, which is supposed to rescue us.We have completely lost the plot and no longer have an economy that is in any way flexible, as modern conditions require.

A small addendum. Edgar, the nephew of Aethelstan, whose grandfather was Alfred the Great, was King of England (959-975). He was known as Edgar the Peaceful, as the Kingdom had been riven for quite some years before him. Hardly anyone has bothered to write anything about him because nothing much happened. And England’s trade and commerce burgeoned in those 16 years. He did actually do two things, both of which strengthened commerce. The first was standardising the coinage, a necessary precursor for real growth. And the second was strengthening the rule of law and making sure commercial agreements were complied with. How much better than continually interfering in the economic process.

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