Monday, May 2, 2016

When Supply Exceeds Demand . . . (2016)

The Cooking the Books column from the May 2016 issue of the Socialist Standard
The capitalist class is not a monolithic block with a single interest. They are united of course in wanting capitalism to continue and a government to enforce their ownership, but beyond that it’s a mass of often conflicting sectional interests of particular groups, industries and firms. An important role of governments is to arbitrate between these conflicting interests.
The current crisis in the British steel industry is a case in point. Tata, the India-based capitalist conglomerate which owned the Port Talbot steelworks (which shows that capitalism is international and that the Leninist theory that imperialist Britain exploits capitalist India is nonsense – they’re all in it together), wanted to dispose of it as it wasn’t making a profit. In fact it was said to have been making a loss of £1 million a day. No capitalist firm is going to put up with that for long.
The reason why Tata’s Port Talbot works had not been making a profit is that it was not ‘competitive’, i.e. could not produce steel at a cost below the price they would get from selling it. This was not because its production costs had gone up but because the world market price of steel has fallen. As the Times (30 March) pointed out, there is ‘a global glut of supply. Capacity utilisation in the global steel industry is just 66 per cent.’
This glut, and overcapacity and overproduction (in relation to market demand not needs), is a manifestation of the world economic slump that followed the Great Crash of 2008, from which the world economic has not yet fully recovered.
China too has a surplus steel-producing capacity. The policy its rulers have adopted to try to recover some at least of the money invested in its steel industry has been to sell its steel below its cost of production. In short, dumping. This is not allowed under international trade agreements or, rather, if one country does it, others are permitted to retaliate by imposing or increasing tariffs. This is what the EU wanted to do, but this was blocked by some member-states, including Britain. But why? Didn’t the British government want to protect the British steel industry? In a word, No. They didn’t want a higher tariff as this would put up the price of steel in Europe and so increase the production costs of industries consuming steel.
The BBC reported (1 April): ‘The European Steel Association said the UK had been blocking an EU measure which would have tackled the "dumping" of cheap Chinese steel in Europe, which is partly being blamed for the crisis. (....) The UK has argued against higher tariffs, saying they would hit other sectors such as the car industry, which import a lot of foreign steel.’ The Times that day added: ‘Mr Javid confirmed his opposition last month, saying that it could hurt consumers and other businesses using steel products.’
Explaining this to the Port Talbot steelworkers was never going to be easy. Business Secretary Sajid Javid came across more as the investment banker he once was than as an astute politician. But he gets full marks for honesty when he told the Engineering Employers Federation:
‘We have to recognise what government can do and what it can’t. There is a huge overcapacity and a fall in world demand and we can’t change that’ (Times, 31 March).
Precisely.

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