Socialist Worker

Melted down for profit - the real reasons for the crisis in steel

As thousands of steel workers face the sack, Tomáš Tengely-Evans argues that we should blame the real culprits and fight back

Issue No. 2477

Tatas Port Talbot works in South Wales

Tata's Port Talbot works in South Wales (Pic: Flickr/@ly$ in wonderland)


The Tories broke the steel industry up and sold it for parts in the 1980s. Top capitalists then raked in profits during the boom. Now workers are being made to pay the price.

But manufacturing jobs have been in steady decline since the end of the First World War.

That’s because market competition leads bosses to slash jobs. 

If bosses don’t plough investment into new technology to get ahead of their rivals, their company will go to the wall. 

But this investment always comes at the expense of the workforce.

When the Teesside steel works in Redcar opened in 1917 more than 40,000 worked there.

But its success was based on always driving through “efficiency”.

So the number of people working in the steel industry there had shrunk to 28,000 by the 1970s—and by 1999 it stood at just 6,000.

This doesn’t mean that Britain is producing less steel. Sheffield produces more steel today than it ever has before.

But with more investment in technology, bosses’ profit rates start to fall.

While this pressure of competition underlines the loss of manufacturing jobs, British bosses’ investments lagged behind their major rivals. 

Things came to a head after the Labour Party was elected in 1964. 

In 1967 Labour nationalised the main British steel companies to form the British Steel Corporation. This was part of a plan to “rationalise” industry and boost productivity.

Many workers welcomed it, but Labour’s plan was still based on pushing ahead with the bosses’ drive for efficiency. 

Floundered 

Its plan floundered as the global economy crashed in the 1970s and British Steel moved swiftly into the red. 

The cost of raw materials was going up and orders plummeted as manufacturing was also being squeezed. So when Margaret Thatcher came to office in 1979 the bosses went on the offensive. This has directly shaped today’s crisis-ridden steel industry. 

When union busting businessman Ian McGregor was appointed director, British Steel employed 166,000 workers. 

Within two years there were only 71,000 left. The union leaders had helped to sell 80,000 steel jobs by calling off the 1980 strike.  

Thatcher’s aim was to strip the business of its unprofitable producing parts and privatise the rest. 

British Steel was finally sold off in 1988 after a sustained assault. But privatisation didn’t “turn it around” and the new private bosses continued to asset strip the industry’s more profitable parts at workers’ expense. 

But even this couldn’t shield the bosses’ from international competition. This creates pressure for steel companies to cut costs through mergers and acquisitions. 

In a bid to cut costs, British Steel merged with the Dutch steel giant Koninklijke Hoogovens to form the Corus Group. 

The two companies boasted that the merger would produce “terrific cost savings in overhead costs, purchase, logistics and adjusted best practices”. This included laying off 10,000 workers. 

But international competition and the decline of manufacturing fuelled a race to the bottom. 

So bosses reduced steel production to three sites and focused on manufacturing specialised products. 

Corus was the world’s ninth largest producer when it was bought out by its larger rival Tata in 2006.

Sackings

The merger inevitably led to more sackings. But not even these sort of mergers could shield steel from the global crash in 2008. 

Tata reduced production across its plants, but Teesside was hardest hit. In 2009 it lost a major contract and “mothballed” the steel works with the loss of 1,700 jobs and thousands more in the supply chain. 

It was sold off to SSI and reopened in 2012—only to go into liquidation without a buyer last month. 

The British steel industry is being ground between two pressures. It can’t compete with its rivals in Brazil, India and China in producing steel. 

The global slowdown also means companies aren’t buying up steel and Labour’s proposed import controls are no solution.

Now even the specialist manufacturers such as Caparo are being forced out by the slowdown in manufacturing. 

For the last 30 years steel has been hit by a crisis of profitability. But this doesn’t mean that workers have to keep paying the price. 

This crisis pits steel workers against the whole logic of the market—but this small group has immense power. 

To keep steel jobs we need a determined fight from the union leaders. But we also need to point to the alternative based on producing for social need—not asset stripping for the bosses’ greed.


Cashing in on the crisis

Top capitalists have asset stripped the industry since British Steel was privatised in 1988—now they’re cashing in on bankruptcy. 

Through their connections with politicians and the banking industry, the bosses raked in profits during the good times.

They could see the crash coming for the last year. But they still raked in profits while they could and then jumped ship. 

When Tata Steel bought out the Corus Group it claimed there would be no job cuts or less production in Britain. 

Tata has been reducing capacity and slashing jobs ever since. 

Tata is a global empire—steel is only one unprofitable part of that. It encompasses everything from chemical companies to Tetley’s Tea. 

This allows it to always keep the profits flowing into its coffers. 

In 2015 the Tata Group’s top bosses awarded themselves up to 22 percent pay hikes. 

Tor Farquhar is Tata Steel UK’s executive director for human resources—that’s theworkforce. 

He’s had the job since 2012—it’s since then that Tata began slashing jobs across its plants.  


Getting away with the loot

Caparo’s global reach grew through “aggressive acquisition”—or asset stripping companies.

Here David Patrick Dancaster, now a top Caparo director, came into his own. He is also partner of Core Capital, a private equity investment firm that specialises in helping smaller firms. 

Angad Paul, Lord Paul’s brother, is a Core Capital partner. Meanwhile, Dancaster has remained a director of Caparo’s profitable Indian operations.

PricewaterhouseCoopers (PwC) are liquidating the Caparo Industries.

As it happens, Dancaster worked as an accountant for PwC between 1980 and 1985.

PwC boasts that it has the “largest corporate insolvency practice”.

Administrators aim to make firms solvent again so they help shareholders “recover” as much value as they can.

The company’s assets can be broken up and sold on—but it’s workers who are made to pay.  

PwC’s past jobs include UK Coal, the privatised successor of the National Coal Board (NCB). But it knows how to help its banker friends.

In 2007, PwC helped Northern Rock sell its mortgage assets while acting as its auditor. 

Then in 2009 it was fined £1.4 million for falsely reporting to the Financial Services Authority that JP Morgan Securities held client funds separate to bank funds. 

It hadn’t bothered to check properly 


Peerage for job cuts

The bankrupt Caparo Industries plc was set up by Labour peer Lord Paul in 1968. Lord Paul donated £500,000 to Gordon Brown’s Labour Party. 

He didn’t pay any tax and only gave up his “non-dom” status to keep his political influence—and expenses—in the House of Lords. 

His family is worth £2 billion, and runs the business like a family empire. 

His grandson Akhil Paul was a rising star in Caparo, gaining his first board appointment at 24. 

The writing was already on the wall for Caparo Industries’ 16 companies when Akhil was appointed director of 14 of them. 

His appointment for all of them was terminated on 23 September 2015. But despite impending liquidation, he could still afford a lavish lifestyle. 

The month after his appointment he was married in Hungary in a “Grand Budapest Hotel”-themed wedding. 

Lord Paul took the opportunity to talk with Hungarian ministers from the right wing racist Fidesz party about plans to expand his empire.

The family own a dozen flats in the plush Portland Place, each worth nearly £1 million. That’s on top of the 250-acre country estate in Buckinghamshire. 

 


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