THE CASE AGAINST NATIONALISATION

DEFENDERS of the present arrangements of the steel industry are not concerned solely to defend private enterprise. They assert that the steel industry ought to be subjected to a considerable measure of public control, but they contend that "the measure of such control provided by the 1953 Act is adequate, and argue that any attempt to increase this control would damage the public interest by discouraging private initiative.

The industry's fundamental proposition is that public control can be achieved and has been achieved without public ownership. It is claimed that the present combination of private enterprise with public supervision combines all the advan- tages of the first with none of the disadvantages of centralised, bureaucratic control.

The picture of the present system painted by the industry may be roughly described thus: the production of steel in its various forms is carried on by over 300 companies, some of which are linked together; each of these companies has a compelling interest in serving the consumer • efliciently; in order to return a profit these com- panies must satisfy the consumers' demand; equally, they have a strong incentive for estimat- ing that demand accurately; if it is underestimated, markets will be lost to foreign competition; if it is overestimated, investment will not bring a due reward.

Nevertheless, it is claimed tnat the circum- stances of the industry are such that a large measure of organisation and co-operative effort between producers within it is necessary to its welfare and the proper performance of its func- tion. The steel industry is highly capitalised : it is necessary to lay down immense sums in order to establish new plant and it takes a long time to build such plant; accordingly, the return on invest- ment is very slow. In these conditions, chaos would result if each individual steel firm made its own plans for production and fixed its own prices without any reference to what other steel firms. were doing.

This is roughly what happened in the 1920s. The world economic crisis aggravated the effect of unrestricted competition in the steel industry and led many to ask how this key industry could contribute to restoring stability by putting its own house in order. When the Government decided to extend tariff protection to British steel, the British Iron and Steel Federation was set up for the pur- pose of achieving a measure of organisation in the industry's affairs.

Through the Federation, steel producers are able to co-operate in importing the raw materials they need and thereby reducing their costs; they are also able to form broad plans in collaboration with each other for the industry's development and to make sure that their individual plans for expansion do not seriously conflict.

The industry does not deny that the Federation has larger functions than those which belong to normal trade associations. It contends that these functions are absolutely necessary and that the need for them is admitted by the advocates of nationalisation who also hold that national steel production must be planned. The representatives of the Federation also insist strongly that it is a purely voluntary body; no company can be forced to belong to it. Although companies submit their development plans to the Federation's Develop- ment Committee, this Committee has no 'constitu- tional authority to force them to abandon or change those plans. Furthermore, the industry admits that price stability is essential to its welfare, and minimum price agreements have until recently been a familiar feature of its arrangements. These have now been abolished and a general recom- mendation that the maximum prices fixed by the Iron and Steel Board should be charged has been substituted for them. The Federation, it is con- tended, cannot therefore be regarded as an alliance against the consumer or an oligarchic institution designed to impose the will of larger producers on smaller ones.

Nevertheless, the possibility that an industry so closely organised might develop some of the characteristics of an oppressive and restrictive monopoly cannot be excluded. For the last twenty-five years, therefore, the industry has accepted the view that the State is justified in supervising its activities to an abnormal extent, and supervision at present gives protection, it is claimed, against the dangers inherent in this posi- tion.

In the first place, the 00vious danger of con- sumer exploitation by means of artificially main- tained high prices is offset by the fact that the Board itself fixes maximum prices in the home market. Still further protection in this respect is now given by the Restrictive Trade Practices Act.

in the crucial matter of development, the Federation contznded in its evidence to the Commission that the community was equally pro- tected by present arrangements. A general plan for the expansion of the steel industry over a period of years is from time to time put forward by the Board. This plan is the result of discus- sions between the Board, the Federation and the Government departments concerned. An agreed estimate is made of the probable demand for steel of all kinds and a sketch is drawn of the general development of the industry whicl, is needed to satisfy this demand. This sketch pro- vides the standard by which the Federation's Development Committee judges and advises on the proposals of particular firms, but these pro- posals have to be approved by the Board before they can be carried out. The Board has a veto on al; considerable schemes for expansion. In addi- tion to this negative power, the Board's right to recommend the Minister of Power to establish plant for the purpose of carrying out any necls- eary development which the industry is unwilling to undertake or to commission some firm to do this for him ensures that the industry shall not lag behind in satisfying the country's need for steel production.

The Board has often used its power to veto development projects; the fact that its extreme power of recommending the Minister to set up plant has never been used is merely proof, the Federation maintains, of the efficiency with which the steel industry does its job. The important point is that this power could be employed if necessary. It may even be that its existence has been a spur to the industry. In one crucial respect, the Federa- tion asserts, this system differs from nationalisa- tion; the particular plans for carrying out the industry's general programme of development are made by individual firms in competition with each other and the finance needed to put these plans to effect is provided by the firms themselves. The steel industry is therefore obliged to pay its own way and, the industry maintains, is subject to that financial discipline which nationalised indus- tries conspicuously lack. The de-centralisation of financial control ensures, it is argued by those who support the present arrangements, a wholesome de-centralisation of initiative. In short, the advan- tages of co-operation within the industry,.super- vision in the public interest and competition be- tween firms are combined in the 1953 Act in a manner which no other system yet proposed would secure.

Steel Production It has been consistently urged by the industry's critics that its most grievous defect is its un- willingness to spend adequate sums of capital on development and its consequent failure to satisfy the nation's demand for steel.

The Federation's representatives pointed out that since effective nationalisation lasted only for a few months the industry's post-war record might fairly be used as evidence of the efficacy of that combination of public control and private initia- tive which assumed its present form in the 1953 Act. During this period, they contended, the industry had achieved outstanding success. In support of this they quoted the following figures : total steel production in 1946 was 12.7 million tons; by 1957 it had risen to 21.7 million tons. Productivity per man from 1950 to 1957 rose by 26+ per cent. compared with 12 per cent, for all industry, From 1946 to 1957 the average output of both blast furnaces and open-hearth furnaces rose by over 75 per cent.

The Federation's view is that the steel industry's first task is to serve the home market, and in particular to supply the metal goods exporting industries. Direct exports of steel -have there- fore as a matter of deliberate policy been restricted; it is relevant to point out, however, that in 1957 over half our total exports were ac- counted for by the steel-producing and consuming industries. The steel-producing capacity of the industry in 1946 was 13 million ton; it is now 234- million tons. The target for •the third , Develop- ment Plan is a capacity of 29 million tons by 1962, and the recent modification of this target made necessary by the difficulty of raising finance under the threat of renationalisation and the delay in securing a decision from the Government on the fourth strip mill will still .produce, in the industry's opinion, an adequate capacity by 1962. At present the industry has a surplus capacity of about 6 million tons.

This, the Federation contends, is emphatically not the record of an industry in decline; on the contrary, it is a record of outstanding achieve- ment. It is not surprising, it continues, that some of the most strenuous advocates of nationalisation in the past have expressly stated that they do not base their case on alleged inefficiency within the industry. Yet that appears to the industry as the sum effect of the specific charges levelled against it. The industry's replies to these allegations are as follows.

Production at Home and Abroad It has been alleged that steel production in 'this country has expanded far less quickly than abroad. Comparisons of this kind are of extremely doubtful validity : naturally, the steel industries of countries devastated during the war were rebuilt at considerable speed. The degree of steel produc- tion at the end of the war, the extent of labour costs, the comparison between the steel industry and other industries, are all relevant factors in any computation of this kind. The comparison with the rate of progress in post-war devastated Ger- many is for obvious reasons peculiarly irrelevant. If this comparison is to be made, it is pertinent to point out that German imports of steel during the period 1953-56 represented 13.7 per cent. of her crude steel production, whereas Britain's repre- sented only 6.8 per cent, of hers.

The Pace of Development It is said that the Federation has always lagged behind the Government and fhe Steel Board in its estimate of demand. The Federation points out that estimates of demand result from discussions between the industry, the Board and the Govern- ment. So far, agreement has always been reached between these three parties. The first post-war Development Plan which was prepared by the Federation before the Board's establishment, was expressly approved as adequate by the Labour Government*, When the industry has been asked by the Government or the Board to revise its own estimate of demand upwards it has invariably agreed to do so. The estimation of demand over a period of four or five years is a notoriously com- plicated exercise, in the course of which consumers and the Treasury have to be consulted and guesses have to be made about probable economic trends. The Federation claims that it has on occasion made a higher estimate of demand than that put forward by the public authorities.

On the whole, however, the Federation does not

* 'If the Report is broadly right, as I am inclined to think it is, then the carrying out of that technical scheme of development is desirable whether there is private ownership or public ownership' (Herbert Morrison. House of Commons, May 28, 1946).

Discussing what would happen under nationalisa- tion, Mr. Morrison said on the same occasion : The Control and the Minister will decide a programme of technical development and I would not be surprised if it is very much like—I do not say exactly like— the industry's own scheme.'

deny that its instinct is to be more cautious than the Board, though the margin of difference is often comparatively slight. This caution arises from the fact that it is the industry which has to bear the financial losses which result from an over- optimistic view of the state of the market. One of the merits claimed for the element of private enterprise in the present system is precisely that it imposes this degree of financial discipline. The choice, as the industry sees it, is between the removal of this measure of discipline and the re- tention of that combination of private incentive and public control which already exists.

In matters of economic forecasting, hindsight is easier than foresight, and the Federation asserts that no one familiar with the temper of economic forecasting in the post-war years could deny that the level of production achieved by this industry has greatly exceeded anything that was expected in 1945. The essence of the Federation's case on this point is that estimates of demand result from joint discussions between the Government, the Board and the industry, that if the industry falls short the public authorities have adequate powers to expose and correct its failures and that, in these circumstances, to imply that the industry is solely responsible for any insufficiency that may have arisen is unreasonable.

Steel and Plant Shortage It has been continually stated that the post-war period has been one of recurring shortages of steel. This was so throughout most of the period, though the position has now been sharply re- versed, but it was so throughout the whole world. In any case, estimating the extent of steel shortage and the causes of it is complicated by the variety of products made by the steel industry; a shortage of one commodity may occur at the same time as a surplus of another.

The Federation points out that the expansion ' of steel capacity depends on the production of plant for the steel industry and that this has been a gravely limiting factor since the war.

Before the war the building of a completely new works took two years; it now takes four to five years. The first Development Plan was largely con- cerned with replacing plants worn out during the war; it soon became apparent that it would be extremely difficult for the steel industry to secure',4 the services of the plant manufacturers to the extent needed in face of the competition of other industries and particularly of the Central Elec- tricity Board. It was found that many of the projects which were to be undertaken might be begun in the five-year period covered , by the development programme, but that they could not be completed for seven to eight years.

The Federation points out that this difficulty would not be reduced by nationalisation. Even if the Government were empowered to direct the plant producers to satisfy the needs of the steel industry before those of other industries, it would still have to be proved that in any particular case the national economy would benefit. More steel might be produced at the cost of producing fewer motor-cars for export or fewer power stations. In the opinion of the Federation no assessment of the success of the steel industry which leaves out the difficulty of procuring plant has any relevance to the discussion. That the industry did its best to anticipate and overcome this difficulty is shown by the fact that when the first Development Plan was under consideration it established a joint com- mittee with the plant manufacturers under the 'chairmanship of Sir John Duncanson. A compre- hensive survey was made of the capacity of each of the principal engineering companies, a detailed schedule of work was prepared, and this schedule involved the full use of that part of the capacity of the engineering industry which could be allo- cated to the production of steel plant without interfering with the industry's commitments to other home consumers and its wish to maintain a position in the world market.

The Fourth Strip Mill

The Federation maintains that its critics have grossly misrepresented the history of the fourth strip mill controversy in their effort to prove that the present system involves serious and avoidable .delays.

At the end of 1956, Richard Thomas and Baldwins submitted to the Board and the Federa- tion a plan for the building of an integrated steel- works at Newport with an initial production of 900,000 ingot tons; this was to supply the existing strip mill at Ebbw Vale which is at present sup- plied by the RTB R.edbourne works at Scun- thorpe. The site was to be laid out with a view to adding a strip minas soon as demand justified it. In the meantime, a great saving would be effected by dispensing with the need to convey slabs from - Scunthorpe to Newport, Ebbw Vale would be able to use its capacity to the full (space restricts its expansion) and the Redbourne works would be enabled to concentrate on the production of billets. This plan .was approved by the Federation in April, 1957, that is to say, some three months after its submis.sion.• The Board, however, took the view that a .strip mill was required as part of the initial development at Newport by 1962 or as soon after as ,practicable. Accordingly, the coin- , pany,produced new proposals in March, 1958, for the establishment Of an integrated steel works with a strip mill for an initial production of something over a million ingot tons on the Newport site. The Federation approved this plan the following month. subject to certain reservations about timing. Negotiations thereupon took place be- tween the company, the Board and the Govern- ment. On November 18, 1958, the Prime Minister announced that the Government had decided on the establishment of a strip mill producing initially 500,000 tons at Newport and another producing 500,000 tons at Ravenscraig in Lanarkshire.

The Federation asserts that its only disagree- ment with the 'Board was over timing, that there was no disagreement between the still-nationalised firm of Richard Thomas and Baldwins on the one hand and the Federation on the other, and the last months of this controversy were occupied almost entirely by delays arising from the sudden intrusion of a new point of view. The Govern- ment was concerned with larger than purely economic considerations; one of its chief reasons for adopting a different plan was the desire to attract new industries to Scotland. It will also be observed that the industry responded promptly to the Board's wish to have plans for a strip mill at Newport prepared (a year cannot be regarded as an unreasonable time for preparing a scheme of this kind), and that when the Government had made up its mind no difficulty was experienced in getting the co-operation of Colvilles in carrying it out.

It would be hard to infer from these events, the Federation claims, that it had pursued a policy of deliberate stonewalling, as it had never taken more than a few months to express its opinion on any plan put before it. Since from an early stage in the discussion it was extremely doubtful whether a fourth strip mill could possibly be constructed at Newport by 1962, the date favoured by the Board, the dispute was to some extent academic.

Home Ore Development The industry has been specifically criticised for its inadequate development of home ore. The Federation points out that a variety of highly complicated considerations are involved in any judgment on this subject. Iron ore mining is an extractive industry; deposits are continually in process of being exhausted. Comparisons of total production from one year to another are therefore deceptive since much new production is absorbed in making up for the decline in yield of the older fields. The difficulties of iron ore mining are constantly increasing, since it is neces- sary to go ever more deeply into the earth in order to reach the ore; the limit of overburden which used to be regarded as practicable was forty feet; it is now eighty feet. Furthermore, the exploitation of iron ore reserves is extremely costly, and it could involve the deliberate creation of a new township when a new field is to be exploited. For social no less than for economic reasons it is, in the Federation's opinion, unwise to start mining in any field which is not assured of a life of seventy years. Only in wartime (pro- . duction of 19.2 million dons a year was achieved during the last war) is it reasonable to mine iron ore without careful regard for the future.

In spite of these limitations, production of home ore rose by 4 million tons during the, period 1946-56 and now stands at 16,245,000 tons. A further increase up to 22 million tons is planned by 1962 and it is hoped that by the late 1960s a production of between 25 and 30 million tons will have been achieved. Schemes for bringing' about the projected increase by 1962 are already thor- oughly prepared.

The Federation believes that this record repre- sents a considerable achievement in the face of generally underestimated difficulties. It also points out that the relative merits of using imported ore and home ore depend largely on the cost of transporting ore from oversea. A recent decline in freight charges has helped to narrow the gap between the Federation and the Steel Board on this point.

Finance The Federation insists that any such difficulty which may now arise in financing the industry is almost entirely due to the threat of renationalisa- tion. It points out that it knows no instance of a project's being abandoned or delayed for lack of finance; it points out that little difficulty was ex- perienced in reselling by far the greater part of the industry to private owners, often very small • investors.

Obsolete Plant It has been said that development has been constantly handicapped by the amount of obsolete plant in the industry, and it has been asserted in particular that in 1955 the percentage of inefficient plant had not been materially reduced from what it was in 1945. The Federation contends that this last statement is a distortion brought about by confusing two categories of plant, that which is obsolete and that which is below average but cap- able of some years of useful life. It is also pointed out that there are economic advantages in retain- ing a certain amount of below-average plant which can be withdrawn from production in times of slump at considerably less cost than that which • is involved in suspending the activity of a com- pletely up-to-date plant.

Research It is sometimes alleged that in technical develop- ment British steel industry is five to ten years be- hind Continental practice. The Federation has pointed out that it maintains the largest co-opera- tive research organisation , of its, kind in the country, With an annual budget of nearly a million, and that the companies themselves spend three times this sum on research. The Federation states that : 'As regards the adoption of new techniques, where there are problems of direct concern to British steel makers, technical progress has been notable. An example is the'problem of using lean home ores, and the development of ore prepara- tion and sintering has reached a point where the superiority of British practice is universally recognised. Where there is no necessity for Britain to take the lead the position is sometimes different. For example, much of the initial development of the new pneumatic methods of steelmaking was undertaken on the Continent, but this was a reflecticin of the circumstances, not of backward- ness on the part of the British or American steel industries. Both are based mainly on the open- hearth process. The Continental industries, on the other hand, being based on the Thomas process, which was not acceptable in this country for many purposes, were faced with a real need to improve the quality of steel by the pneumatic process.'

Monopoly There is a recurrent suggestion that the steel industry is monopolistic in organisatinn and temper. The Federation has insisted that its critics , under this head usually display considerable ignorance regarding its constitution and function- ing. In particular, it concedes nothing to the view that the Industry Fund is in some sense sinister. It points out that the Board super- vises this method of financing the Federation's commercial activities and has found no cause to object to it. It has also pointed out that in 1955 the British steel industry took the initiative in proposing to the Government a reduction of its protective tariffs, and that, by the terms of recently concluded international agreements, the tariff will be reduced from rates ranging from 15 to 33+ per cent. to a standard rate of 10 per cent, com- pared with an average of 8 to 9 per cent, on the Continent.

In the industry's view, price stability in the home market is essential. There is in practice now no distinction between minimum and maximum prices, the industry having abandoned all formal price agreements and substituted the general recommendation to charge the maximum prices allowed by the Board. These prices are calculated by the most stringent standards directed expressly towards penalising inefficiency and backwardness. They make a high degree of competition inevitable at all times when there is not an acute shortage of steel; in conditions of shortage, of course, intense competition in markets is ipso facto impossible. The Federation states that the industry as it is at present run displays fewer of the features of a monopoly than a nationalised industry would.

In essence, the Federation's case is this : the Steel Board and the Minister of Power between them dispose of all the means necessary to compel the industry to serve the national interest should it fail to do so at any point. Only when this has been disproved, only, in fact, when the Board can be shown to have been frustrated in an attempt to impose its policy on the industry, will there be a case for scrapping the present arrangements. The Board's reports prove, the Federation argues, that, in spite of healthy criticisms of the industry's performance, the Board does not regard itself as having been thwarted in the task of protecting the public interest.