You'll have seen the news that Tata Steel is closing a part of the Port Talbot steel works in Britain. As the Chinese owners do the same to their other steel plant in the country, Britain will, for the first time in many centuries, make no new steel. This is less awful than it sounds. Every technology gets superseded and becomes redundant at some point.
The issue here is not just making steel -- it's making “virgin” steel. That's using iron ore, coal and so on to make it for the first time. Steel is far less used these days. For example, the US uses about half the amount of steel today as it did in the 1950s. That's after adjusting for recycling, imports and exports, everything. The country uses half the amount of steel. Yes, the population has more than doubled, the economy has grown by at least four times per capita (yes, after inflation), meaning that the whole economy is perhaps eight times larger than it was. And yet it uses half the amount of steel.
So, what happened? We've simply become more efficient in our use of steel. We know more about it and need less to achieve any particular task. This is great -- unless you make steel of course.
What's also true is that as we tear down the old version of society then we have that steel that was used last time around. Which is available to be used in building the next version. So, we need less of it -- in fact, we will have some left over.
A lot of scrap -- old -- steel is exported in Britain, and also some reprocessed into new steel. This reprocessing is done in such volumes that there's really very little need for us to make any entirely new -- virgin -- material. So, these sort of factories that make virgin steel aren’t needed any more.
This is what is happening at both of the major steel works in Britain. They are designed to make that virgin steel, but they’re no longer needed. At least, not in the volumes those plants require to be profitable. So, Britain is getting rid of the plants. This is also what would be done to Port Talbot -- the underlying problem doesn't have anything to do with Tata.
Most of the moaning about this is because people simply don't grasp these underlying and basic facts. Or, of course, are the unions for the workers being displaced. We can't exactly blame unions for fighting for their own members now, can we? That's what they're for after all.
But this does highlight what one of our large economic problems is. Which is that all too often it's difficult for the new to breakthrough into the marketplace. For the old doesn't want to go.
Moreover, the old has political power. It exists, there are people who currently make their living from it. Those people have votes. The new, because it's new, has no political power. So the political pressure is always to hamper that new to protect the old. Which is why there's all this talk of a £500 million subsidy to this steel plant. Everyone knows the old one has to die. If Tata wants to remain in business they've got to build the new style of plant. There is, literally, nothing else anyone can or is going to do here. So, why is there a £500m subsidy? Simply because what is seen and known has that political power.
The normal grand power of markets is that they make it plain when something has to go. Repeated financial losses mean that's it -- stop doing it. The problem with politics is that it stops this natural rate of change in the economy. As the European steel industry has been showing for some decades now. This is just the latest episode in a long running tale.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.