Whether or not the government should step in and bail out Port Talbot's steelworks depends very much on whether we think the industry as a whole has a future in Britain. The case for government management is understandable but risks making things worse for all involved.
The best case for the government stepping in is that it would only be temporary – a few months at the most – and would give the plant's managers and unions time to create a restructuring plan and find a new buyer. If that prospect is seriously on the cards we shouldn't dismiss it out of hand.
However, the closure of Port Talbot has been expected for some time now, and it's hard to see why we should expect a buyer to come forward in the next six months if one has not done so already. The danger here is that what begins as a short-term bridge by the government turns into a long-term nationalisation: no buyer is found, and the prospect of the government itself shutting down the steelworks is so politically poisonous that it ends up lurching on indefinitely on government life support.
Keeping an unviable plant on life support exacerbates problems there and crowds out potential new sources of employment.
That would be bad news for all involved. In general, we want capital directed where it is productive. Jobs and investment don't just exist to employ people, they exist to produce things that people want to consume.
This isn't rigid ideology – it's just common sense. If a firm is unprofitable in the long run, it's a sign that that investment and those workers are better off producing something else. Bailing out failing firms to protect jobs just locks capital and labour into unproductive activities. It's a waste for all involved. And that includes workers at Port Talbot. Keeping an unviable plant on life support exacerbates problems there and crowds out potential new sources of employment.
Tim Worstall points out that the blast-furnace technology at Port Talbot and most other British steel mills is out of date.
Increasingly, the world is recycling steel using more efficient electric arc furnaces, not rolling new steel from iron ore. Port Talbot's plant and machinery may be increasingly redundant if this is the way the industry is going globally.
The only justification for nationalisation is if we're prepared to say there is nothing that the people of Port Talbot could conceivably do productively.
To be fair, there may be a grain of truth in that. Globalisation is, overall, a very good thing, but some of the old heavy industries in Britain could only exist without it. China produces half of the world's entire steel output and can do so very cheaply, even without state subsidies. In sectors where we have a competitive advantage – because they are skills- or capital-intensive, for example – this is not a problem. But in some industries, perhaps including steel, British workers may simply not be able to compete.
Government should not be bailing out industries that cannot survive on their own
Some say this means we should 'protect' those sectors with import tariffs. This is crazy, even if China really was subsidising its steel industry to the hilt and dumping cheap steel into our markets. In fact, subsidies seem like only a small part of the problem: the reason this is happening now is that China's economy is slowing down and, as by far the biggest consumer of steel in the world, global demand has fallen significantly.
For almost everyone in Britain, cheaper steel is an excellent thing. It means cheaper inputs for many of our other industries like construction (which employs a million people) and automobile manufacturing (which employs 180,000), and lower prices for British consumers. Tariffs would hurt workers and consumers across Britain, and would just be a roundabout way of keeping steel on life support.
Labour MP Dan Jarvis and others have argued that we should prop up the industry for strategic reasons, in case in time of war the defence industry cannot import steel from abroad.
This seems improbable, but if it's a real danger, why not just stockpile a few years' worth of cheap Chinese steel now and warehouse it somewhere, as we do with petroleum?
It's not as far-fetched as it sounds. One cubic metre of steel weighs 7.8 tonnes, and UK annual demand is 9.6m tonnes, so we'd need 1.2m cubic metres to store a year's supply. We could fit that into a couple of warehouses with room to spare. If strategic reserves are really a concern, keeping an entire industry afloat doesn't seem like the best way of solving the problem.
There are some things the government could do to help places where the industry is failing. Tata has blamed high energy prices for some of their problems in Britain – and part of this is because of environmental levies, and part is because we have favoured relatively expensive renewables such as wind power over nuclear, which France has preferred.
Capital taxes such as corporation tax reduce investment. This would not help plants that are expected to be unprofitable in the long-run, since corporation tax is only paid on profits, but it would raise investment in other, productive industries. Cutting these taxes would boost investment and help to create jobs.
The government could try to distribute its funding for research and development more neutrally across the country, as Tom Forth has suggested. In most developed countries, businesses and government distribute their R&D spending in roughly the same way, geographically; in the UK there is a strong bias towards the south-east in government grants compared with business.
None of these are really short-term solutions, but it seems unlikely that such a thing exists. For now, it is understandable that the government is considering all options, but it should not be bailing out industries that cannot survive on their own. The answer is not to try to keep old, struggling industries on life support, but to do what we can to let newer, more productive ones take their place.