Progress | Centre-left Labour politics

The steel crisis highlights the importance of active government

Date: 20 January 2009.
Location: Washington, DC.

Scenario: America’s first black president has just taken over the reins of an economy that is on the brink of another Great Depression. By the time the day is out, nearly 26,000 jobs will have been lost to the nation. Workers who have contributed so much to helping America’s economy and community through work, now have to make the painful, undignified, heartbreaking walk to the dole queue.

Instead of seeing unemployment as a ‘price worth paying’ for an era of mismanagement, Barack Obama showed us that it is possible to have a viable intervention with a focus on returning an industry to growth. His new administration was at the forefront of reviewing business plans, and suggesting that Chrysler partner with Fiat in order to form a more confident plan. The provision of working capital to Chrysler, General Motors, and their stakeholders was vital to enable them to take the time they needed to restructure for the long term.

Once the Treasury had sold its stake in what was General Motors Acceptance Corp, signalling the end of the troubled asset relief programme toward the latter stage of 2011, the US taxpayer made a profit of $15.35bn.

It was this move by Obama that saw him beat Mitt Romney to the bellwether Midwest electoral votes in 2012.

Government intervention in markets, say free-marketeers, never works, and always results in a burden on the taxpayer. But this is a lesson for our own troubled chancellor who is set to bring down another punishing loss on the British taxpayer to the tune of £22bn, by his quickfire sale of more publicly owned Royal Bank of Scotland shares, to once again make up for the holes in his (what I call) ‘Leerdammer’ budget. It is also a lesson for our beleaguered business secretary.

Mitt Romney said ‘we can kiss the American auto industry goodbye’ if Obama’s policy of direct government intervention was implemented. But look at what has happened. The US produced 12,100,095 cars and commercial vehicles in 2015, up from just 7,743,093 in 2010. A Reuters study found that 1.5 million jobs were saved in the rescue operation, with over $100bn preserved in tax collections, where it may have been spent on welfare payments.

It’s worth pointing out also that this programme was under way at once when Obama came into office. Late in 2015, the steel plant at Redcar was mothballed, with the owning company Sahaviriya Steel Industries citing ‘poor trading conditions’. However, alarm bells should have been sounding about this from 2010. In that year, what was called Corus was mothballed in the same location, with almost the same number of jobs lost.

The US auto industry shows us that the United Kingdom steel industry is not a lost cause, as long as there is bold leadership from a pragmatic government that is motivated by the rewards of action. A proper plan, devised by both the companies involved, and a government willing to provide support, can return not just a company, but an entire industry, to profit.

The government needs to learn that public sector intervention is not just about throwing money at a company in the hope the problem will go away. Topping a car up with water all the time does not rid the problem of an engine part that needs replacing.

It is about time that Conservative backbenchers stopped cynically blaming Brussels, and Sajid Javid stopped opposing tariffs that are necessary to prevent Chinese dumping, which is the main cause of recent record low prices. If this politicking stops, and a modern government presence is made known, over 40,000 jobs might just be saved.


Liam Martin-Lane is a Labour party and Progress member. He tweets @KidInASweetShop


Photo: Marc Nozell

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Liam Martin-Lane

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