Thursday, 22 October 2015

Steel Crisis

The UK Steel Industry appears to be on the verge of disappearing. Like the coal industry, it has already gone from being a major staple industry, employing hundreds of thousands of people, to a minor industry, with just a few remaining functioning units, employing just a few thousand people. The trajectory has been the same in other ways too.

Both the steel industry and the coal industry, in the post war period, were important industries for the British economy, and yet both had suffered decades of under investment by private owners. Many mines, and many iron and steel works, were still owned by private capitalist families, more reminiscent of the capitalism of the early 19th century. The task of rationalisation, and of introducing the investment required, fell to the capitalist state, which nationalised them. The capitalist state engaged in a process of intensive accumulation, which sharply raised productivity through the introduction of new technologies, which simultaneously led to the redundancy of large numbers of workers in those industries. A similar thing happened with other staple industries, from transport through shipbuilding, and the car industry, before the productive-capital was once more sold off on the cheap to private capitalists.

In the 1980's, steel workers were also one of the first groups the Tories took on, in accordance with the Ridley Plan, before they moved on eventually to the Miners in the 1984/5 strike.

But, the success of the Tories in the 1980's, and what it represented, forms part of the problem facing the UK steel industry today. In Capital Volume I and III, Marx describes the process by which capital accumulation proceeds. First, the scattered individual means of production of the direct producers, start to be brought together by small capitalist producers. Initially, this even takes the form of those former direct producers, simply continuing handicraft production under a single roof of the manufactory owned by the capitalist. Secondly, the process of division of labour also means that increasingly, not only are the means of production owned collectively by the capitalist, but the workers within the factory cease being individual producers, and instead become merely components of a collective worker. Each simply produces one part within the labour process, so that all the workers in the factory have to work co-operatively.

In short, it is a process by which the means of production, and production itself becomes socialised. Third, competition ensures that a process of concentration and centralisation of capital ensues. The more efficient firms make more profits, and get larger; the less efficient firms go out of business, and their capital is bought up on the cheap by the bigger firms. Fourth, the scale of production reaches a level whereby not even the biggest private capitalist firms are big enough to provide the capital required, and so this private capital is replaced by socialised capital, in the form of joint stock companies, co-operatives, corporations, trusts and so on, and the ultimate expression of that is state capital.

A look at the period after WWII, shows an increasing trend in this direction, and along with it came a concomitant increase in the degree of planning of production over longer time scales. It was not just manifest in the growth of state capital, and of these giant trusts, but also of the framework in which they operated. So, for example, after WWII, not only was there the establishment of a series of social democratic structures, such as the The World Bank and IMF, and so on, but there was the establishment of things such as the European Coal and Steel Community, which was a forerunner of the EEC, and the EU.

What this reflected was the reality that this now huge agglomeration of socialised productive-capital, had burst the bounds of the nation state, and also that such socialised capital could only function rationally on the basis of some form of planning. But, the success of Thatcher and the Tories in the 1980's, and the same is true of the success of Reagan Republicans in the US, represented a failure of the representatives of that socialised capital, i.e. of social democracy.

The interests of that mammoth socialised capital, lay in a continuation of those processes that had been in play after WWII. That is a greater centralisation of the productive-capital, and the ability to accumulate in a more stable environment, provided by an extension of planning and regulation, on an even wider scale. The EU represented such a process. The kinds of structure required were indicated by German social democracy, which had been formed almost from scratch on such a more rational basis, after WWII. Within it, for example, the predominance of the interests of the socialised capital, were recognised in the corporate structures, which provided for supervisory boards to be composed not just of the representatives of shareholders, but of the workforce too. Similar proposals were being drawn up by the EU, too in the shape of the EU's Fifth Directive, and in Britain with the Bullock Report, that were produced in the 1970's, before the triumph of conservatism.

As I've indicated in previous posts, the recent statements by Andy Haldane, about “capital eating itself”, and Hilary Clinton's comments about “Quarterly Capitalism”, where the requirements of increasing shareholder value, have led to a decline in productive investment, are symptomatic of the fact the interests of socialised productive-capital are once more in the ascendant as against the destructive role of fictitious capital.

It was the interests of this fictitious capital, which conservatism in the 1980's and after represented. A whole swathe of social-democratic structures were undermined by it, which in turn acted to undermine the continued accumulation of capital, solely in order to inflate fictitious capital prices, and to transfer wealth to the owners of fictitious capital, away from productive-capital. The various privatisations were simply a way of creating whole new chunks of this fictitious capital, whereas the ability to plan and regulate the productive-capital, was thereby undermined, as single enterprises, were broken down into a number of smaller, competing units. That indeed, can be seen with UK Steel, because, in place of a single British Steel Corporation, which could enjoy the benefits of economies of scale and so on, we have a UK Steel industry broken down into smaller, and so less efficient, units, each competing against each other.

In the 1950's, in the Coal industry, production was supposed to be geared to a long-term “Plan For Coal”, which in fact, was only ever a plan dictated by the needs of British capital, and was repeatedly changed accordingly. But, even within the limitations of capitalism, its clear that the interests of this ever larger socialised capital, lies with such planning, regulation and the corresponding structures, on an ever wider scale. Again that was one purpose for the EU.

The Tories can complain now that what they want is a high wage economy, where tax credits and other such benefits are not needed, but the fact is that it is the polices that they have put in place since the 1980's that have created the conditions where the interests of the accumulation of this large scale, socialised capital, which can pay those higher wages, and provide better conditions, has been undermined, in favour of the conditions which favour not only the inefficient, small capitals that pay the low wages, but also favour the speculators, the owners of fictitious capital, be it shareholders, bondholders, or the owners of landed property, and which also undermines productive investment, and the creation of the kind of social-democratic structures that provide the environment required for its regulation.

In a global economy, not even an EU wide steel industry, could necessarily create the framework in which overproduction is prevented, but it is far better placed to do so, and to plan ahead than are individual steel firms operating in the UK, or even operating in several countries. Moreover, it is better placed to deal with any such overproduction, and its consequences when it does occur. The Common Agricultural Policy does that in relation to the farming industry, for example. Yet, one consequence of the victory of conservatism in the 1980's, was that things like the Milk Marketing Board, were scrapped. Today, milk production, driven by huge profits, has grown globally to such an extent that the global price of a litre of milk is now less than for a litre of water!

And this is the real issue with the steel crisis. A lot of the talk has been about a surplus of steel, because of a slowdown in the world economy causing the demand for steel to fall. But, this is not true. In fact, global consumption of steel has continued to rise, not fall. The crisis is not due to under-consumption of steel, but its overproduction, as previous high prices and profits caused a splurge of over investment. In that respect, steel is no different to the overproduction of oil, copper and many other commodities, whose prices have fallen sharply over the last year, due to the same kind of overproduction, driven by high levels and masses of profits. The same is true with milk and other agricultural prices, which had spiked up as the new long wave boom commenced, in 1999, and even led to food shortages and riots in 2007, but whose prices have now fallen sharply, due to over investment, and over production.

Details on global steel consumption can be found here: -

and on Production here:-

In this context, the talk about “dumping” is also mostly nonsense. Whenever, such a crisis of overproduction occurs, not only is the overproduction denied, and passed off as under consumption by someone else, but its also usual for the blame to be pushed on to foreigners, with charges of dumping, which are often a preliminary to requests for protection of the domestic capital. But, in fact, the fall in steel prices are the inevitable consequence of such overproduction.

Part of the explanation for the sharp drop in steel prices is itself not a consequence of steel overproduction, but of iron ore overproduction. Like oil, copper and other primary products, it has gone through a similar cycle after the start of the long wave boom in 1999. Having been flat at around $11 per metric tonne for a long period, prior to the start of the new boom, prices began to rise after 1999. By 2005, prices had more than doubled, and by 2010 they had reached a peak of over $180 per metric ton, an almost eighteen fold increase on the pre-boom price. The large profits derived from these prices prompted large scale investment in production, which created booms in Australia, parts of Africa and elsewhere. But again, this led to over-investment, followed by overproduction. The price then collapsed by nearly 75%, to less than $50 per metric tonne.

Its clear that if the price of iron ore is only a quarter of what it was, and other falls in energy prices have gone along with it, then this means that the price of steel should also fall substantially, without this necessarily affecting the profit of steel production. On the contrary, it should facilitate higher rates of profit in steel production, as the value of a large element of the constant capital-value is slashed. Its not a fall in global steel prices that explain the crisis, but the crisis of overproduction of steel caused by over investment, that explains the low steel prices!

If we consider just the UK steel industry, then if we have plants A – D operating in various parts of the country, by different companies, then if in total, these companies overproduce steel, so that it cannot find sufficient demand on the market at the current price of production, each will have to sell their output at a market price lower than this price of production. The least efficient of those firms may even find that this market price is even lower than their individual cost of production. But, it would be ridiculous to claim that firm A, based in Redcar, which produces at a price of production of $150 per tonne, is dumping steel on the market, because firm D, based in Scunthorpe's, individual cost of production is $160 per tonne.

That firm A will use its individual lower cost of production, and consequently price of production to off load all of its output on to the market, at $150 per tonne, leaving firm D and others to make losses on their sale, is simply the way that capitalism works. It is one of the reasons that big socialised capital sought to avoid that by reducing such competition, planning production, and creating larger economic structures capable of undertaking the required measures of planning and regulation. It has been the ascendancy of the forces of conservatism, and the interests of the owners of fictitious capital that have undermined that over the last thirty years.

The steel crisis once again shows the need for the development of these social-democratic structures, because productive-capital has grown beyond the old fetters imposed by private capital, and by the nation state. Workers across Europe need to work to create a single steel industry that is directly owned and controlled by its workers on a co-operative basis. It should be part of a general European Co-operative Federation, that comprises a range of such industries, and provides the basis for workers within it, to plan the production of these industries. Such a federation enables workers to undertake such planning not on the basis of seeking to meet the short term requirements of “shareholder value”, but of the long-term needs of European workers, including the need of workers in these industries to be able to have stable employment that is not continually put at risk by periods of boom and bust.

It once again indicates the shortsightedness of those such as UKIP, and the Tory Right, who seek to leave the EU. Rather it indicates the need for not only a single European steel industry capable of undertaking the necessary investment and planning, but with the required resources to be able to sustain any periods of global market instability, in the same way as the CAP was intended to do in respect of agriculture. It indicates, once more, as did the crisis in Greece, that the EU can only survive on the basis of such co-operative, social-democratic principles that ensures that resources are transferred from one part of the Union to another, as and when required.

Indeed, it shows why it was again shortsighted for the UK to not join the Eurozone, because any single market, can only be a level playing field if everyone within it, plays with the same currency. One reason for the lack of competitiveness of the UK industry has been that not only do UK businesses face additional costs for currency conversion, but they also face the costs of uncertainty due to currency fluctuations, and of hedging against those fluctuations. Latterly, they have faced the added burden of a high valued pound relative to the Euro.

The kind of rational structures required can only be provided within a United States of Europe, and its towards that goal that workers in Britain and across Europe should commit themselves.

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