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Last modified: 20 October 2015

Steel and the free market

Recent announcements of huge jobs losses in the UK steel industry are devastating to the workers and families involved. They are a deep blow to the pride of the communities who have for generations built icons of the modern world including the Sydney Harbour Bridge and the Wembley Arch.

The job losses are also a challenge to the views of people like me who believe that well-regulated free markets are ultimately the best way to improve the lives of the largest number of people. I would struggle to find the courage to say that to a newly-redundant steel worker.

The easy way out would be to blame UK green energy taxes and Chinese dumping of steel. That would be wrong. The painful truth is that steel is a commodity that other places with lower costs can now produce just as well as we can.

Why were we still making steel?

The steel industry in the UK has been contracting for a long time. It was obvious to anyone who asked that the trend would continue. Yet far too little has been done to replace it.

Using Eurostat data I have compared R&D spend, both business and non-business (government, university, and charity), by small UK region. The two highlighted in red are those that contain Scunthorpe and Redcar, the two towns most affected by recent job losses. It is clear the UK government has fatally underinvested in developing the new industries that could have replaced the old. Fast-growing industries such as biochemicals (Teesside) and offshore construction (the Humber) would have been obvious targets for intervention.

Public investment of this kind is very different from the extra public spending that the affected areas will now require to fund essential services. Specifically, public sector investment would have led to private-sector investment. It would have created jobs and growth. It would have increased productivity. It would have led to the state playing a smaller role in the local economy, not a larger one.

What can we do now?

Starting investment in R&D takes time. It takes even longer to get results. In the long term it is the answer, but we’ve left it far too late to help right now. For now we should invest in plans that already exist and that will help people get to jobs that already exist.

In Teesside that means un-cancelling the Tees Valley Metro project; a low-cost high-impact investment that would join Redcar much more strongly with the rest of the region. In Scunthorpe it means re-establishing direct train services to the booming city of Leeds and making sure that the jobs being created by the expansion of Humber Ports and by Siemens building wind turbines in Hull are available to people living in North Lincolnshire.

Last but not least, and sadly of no benefit to those who have just lost their jobs, we must be honest about how the UK has failed in this situation. Money has been spent in the wrong places and on the wrong things.

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