TABLE 6.2 Steel production 1913–39
The inter-war period checked the advance of the German steel industry and allowed British steel-makers to recover some of the ground they had lost before 1914. Although the average size of German plants was slightly larger than in Britain, there was no great difference between the two industries in terms of overall productivity.25 The productivity leader, by a wide margin, was the US. Not only was the US the largest steel-making nation (TABLE 6.2), with opportunities for economies of scale which were not available in Europe, but American steel-makers also benefited from the presence of a dynamic, technically demanding and fast-growing customer, the motor industry. By the end of the 1930s there were twenty-eight continuous wide strip mills in operation in the US.
To get closer to the American level of efficiency, European steel-makers needed a market as large and competitive as that of the US. As it was, the proliferation of cartels and tariffs limited the scope for intra-European trade in steel, and made the larger European industries more dependent on their domestic markets. In the British case, thanks to the system of imperial preference introduced after the Ottawa conference in 1932, the steel-makers had access to partially protected Empire and Commonwealth markets; this provided a useful addition to demand, although exports amounted to only 12 per cent of production during the 1930s. The British steel industry was largely insulated from international competition, but this was also true of Germany, where there was a much longer tradition of tariffs and cartels.
Steel is not an industry where the legacy of the past imposed a uniquely heavy burden on British manufacturers. All the European steel-making countries would have an equal opportunity to narrow the productivity gap with the US when the external environment became more favourable. How quickly they did so would depend, not on history, but on the policies adopted by companies and governments after 1945.
1945–60: The Post-war Boom
For the first fifteen years after the Second World War European steel-makers enjoyed a period of unprecedented prosperity in which demand for steel persistently outran supply. The priorities were to tackle the backlog of underinvestment which had been left by the war, and to raise productivity closer to the US level. With the rapid growth in demand for cars, there was greater scope for introducing the wide strip mills which had been pioneered in the US. An additional stimulus to investment in the second half of the 1950s was the invention of a new steel-making process, the basic oxygen furnace, which used less fuel, less capital and less labour than the older steel-making techniques. Basic oxygen steel-making was well suited for large-scale production, and its introduction hastened the closure of smaller plants.
Of the leading European steel-making nations, Britain seemed at the end of the war best placed to exploit these opportunities. The industry had suffered little damage from bombing; the new plants built in the 1930s were in good working order; and detailed planning for the post-war development of the industry was under way. In Germany the revival of steel production was delayed by political and economic uncertainty; it was not until the early 1950s that the structure and ownership of the steel industry in what had become West Germany were settled. The French steel-makers were quicker to get back into full production, but France had been a laggard in this field before the war; a notoriously conservative industry had to be shaken out of its old ways.
When Winston Churchill’s coalition government began examining the future of the steel industry in 1943, a central issue was whether the regulatory arrangements which had been put in place in the 1930s should be retained. Some economists in Whitehall argued that cartels and protection were a recipe for inefficiency, and that competition should be given freer rein. But this was a minority view. The advantages of co-operation between industry and government had been reinforced by the war. Central planning worked well, and the British Iron and Steel Federation acquired more authority over member firms. The main debate was between those, including the leaders of the Federation, who favoured self-regulation under government supervision, and those who wanted a stronger role for the government.26 The Labour Party’s position – and that of the principal trade union, the Iron and Steel Trades Confederation – was that the industry should be brought into public ownership. A joint study carried out by the Board of Trade and the Ministry of Supply at the end of 1944 accepted the Federation’s view that the industry should be protected against imports for at least the first five years after the war and that price controls should be retained. In reaching this conclusion the civil servants were impressed by the apparent eagerness of the industry’s leaders to press ahead quickly with modernisation. The Federation was then asked to prepare a development plan, which was presented to the newly elected Labour government at the end of 1945 and approved a few months later.
The plan called for an expenditure of £168m over a seven-year period to renew some 40 per cent of the industry’s capacity.27 A third strip mill, in addition to the existing mills at Ebbw Vale and Shotton, was to be built at Port Talbot in South Wales by the newly formed Steel Company of Wales, in which Richard Thomas & Baldwins28 and several other sheet and tinplate producers were shareholders. Two other integrated works were proposed for the East Midlands and Scotland, and several of the rationalisation schemes which had been left outstanding from the 1930s were revived. The plan was put together by the Federation out of projects submitted by its member companies. However, the companies were not necessarily committed to the projects contained in the plan. Some of the rationalisation proposals involved difficult negotiations between long-standing local rivals. Moreover, steel was in short supply, and the quickest way to raise output was to patch and mend existing plant.29 The Federation had no powers of compulsion, and it could not prevent investment from being spread over a larger number of sites than had been envisaged in the plan.
Meanwhile the industry was engaged in a political battle over public ownership. Because of the complexity of steel nationalisation, the government excluded it from the first wave of nationalisation measures which covered coal, gas, electricity and the railways. As an interim measure an Iron and Steel Board was set up in 1946 to advise the government on the progress of the development plan, working closely with the Federation. Early in 1947, when the nationalisation bill was about to be put before Parliament, the Federation suggested a compromise, whereby the Board would be strengthened and given the power to acquire shares in individual steel companies. Some senior members of the Cabinet had been uneasy about steel nationalisation from the start, and they welcomed the Federation’s proposal as a way of ensuring effective state control without the cost of a full-scale take-over. However, pressure from the left of the party, which regarded steel nationalisation as a test of the government’s commitment to socialism, proved too strong for any halfway house to be acceptable.30
The nationalisation bill, after lengthy delays in the House of Lords, was enacted in 1949. Implementation was delayed until after the 1950 election, which Labour won with a much reduced majority, and the Iron and Steel Corporation of Great Britain began operations early in 1951. The chairman, Steven Hardie (former chairman of the British Oxygen Company), intended to reorganise the industry into seven regional groups, but the life of the Corporation was too short for any such plan to be put into effect.31 Within less than a year another election was held, which the Conservatives won, and they promptly set about denationalising the industry.
The political battle over nationalisation was fought with much passion, but there were fewer differences between the parties than the rhetoric suggested. Both sides accepted the steel-makers’ argument that steel was not a normal industry; with its large, capital-intensive plants, and its vulnerability to ruinous price competition when demand was weak, some form of regulation was thought to be unavoidable. The issue was whether regulation would be more effective under public or private ownership. Thus in 1950, when Britain was invited to join the European Coal and Steel Community (ECSC), the idea of exposing steel to competition in a wider European market held no appeal for the government.32 The steel-makers had no interest in Ruhr coking coal or Lorraine iron ore, and most of their export trade was with the Commonwealth; closer links with Europe were at best irrelevant and at worst disruptive. When another