COMMENTS AND CONCLUSIONS

ACOMPLETE report on the renationalisation of the iron and steel industry might be ex- pected to start with an examination of the general argument for and against public ownership and an assessment of the success or otherwise of the Labour Government's nationalisation measures of 1945-50. But, even had we had the time and space to do both these things, we doubt whether the results would have been very satisfying. The range of general argument about public owner- ship is immense. As for the performance of the present nationalised industries, there can be no reliable basis for a comparison with how the industries would have performed had their form of ownership and management not been changed. We thought it preferable, therefore, as well as more practicable, to deal with the arguments Which seem peculiar to the iron and steel industry.

In the two preceding sections we have pre- sented the cases for and against steel nationalisa- tion as they have been put to us. We must now try to assess the strength and validity of the argu- ments deployed on both sides, and to suggest What, in our view, are the most important and relevant points at issue.

It is desirable at the outset to dispose of a num- ber of specific points put to us by filo advocates of nationalisation. Although we recognise that they have a bearing upon the efficiency of the in- dustry, we do not think that either separately or in combination they constitute a sufficient rea- son for nationalisation.

It is alleged that the industry h'as been slow in developing home ore resources and in provid- ing the new strip mill capacity, and that in both cases its conservative attitude has retarded the more progressive policy favoured by the Board. The arguments are nicely balanced, and because of the technical factors involved it is hard, if not impossible, for the layman to determine the issues. We have no doubt that the Board would have welcomed greater speed by the industry, but we have formed the impression that differ- ences between the Board and the industry, have recently lessened. We incline to think that critics have oversimplified the many difficult considerations involved and have insufficient grounds for placing the blame for past faulfs upon the alleged obtuseness of the industry.

The other specific charges against the, industry are that it has retained a disproportionate amount of out-of-date plant, and that it has been back- ward in promoting technical developments. We do not think that the first charge has been sub- stantiated. On the second, we have heard per- suasive and well-informed arguments to the effect that the industry's technical development is back- ward and that its approach to research is unduly conservative. We have also noted that the industry spends an unusually large amount of money on research and we have no doubt that it employs people with well-accredited profes- sional reputations to conduct it. We think it likely that the same people would be employed under nationalisation and that, in so far as the criticisms of research are valid, they are com- plaints against the conservatism of much of British industry rather than arguments for public ownership. One further important point should be noted. The critics have made only casual references to labour relations, which, it is gener- ally agreed, are good. Apart from the General Strike of 1926, major industrial disputes have been few, and the average weekly earnings of iron and steel workers are among the highest in the country. There is no reason to suppose that the situation would deteriorate under nationalisa- tion, but there is equally no reason for disturbing the normal good relations which both sides of the industry have built up and maintained.

The Central Question We come now to what we consider to be the central question in the nationalisation con- troversy. Can the industry as at present organised be relied upon to provide the quantity of steel required by the national economy? If not, would State ownership be more likely to give the required assurance? The choice, it must be em- phasised, it not between nationalisation and free enterprise, but between State ownership and an organisation in which private ownership is uniquely blended with public control.

There are three factors which have an im- portant bearing on this general question of development : the methods by which decisions are taken in the industry at present; the risks in- volved; and the capital required. Each must be examined in turn.

Over a wide range of British industry decisions about expansion of output are taken by individual firms without any consultation with their com- petitors or even without any special knowledge of their competitors' plans. Each firm is con- cerned with expanding its share of the market, but this is less marked in the steel industry. At present steel firms discuss and agree within the framework provided by the Board's development plans both the total capacity needed to meet the expected demand for their main products and also which firms should provide which part of any agreed increase in total capacity. Even without Government requirements the industry would have been likely to act in this way in the case of major projects because these are now so costly. A new steel plant of 500,000 or 1 million tons capacity on a greenfield.site now costs respec- tively about £50 million or £100 million. No firm is likely to embark on such expenditure without some assurance that its competitors are not thinking of a similar expansion. Thus whereas in other industries the actions of individual firms in a rising market are likely to lead to capacity running ahead of demand, this is less likely to happen in steel.

Under the present arrangements both the in- dustry and the Board are involved in estimating future demand and making plans to meet expected increases. But there are differences in the risk borne by the different bodies concerned with making these estimates. Neither the Minister of Power nor the Board bears any risk should time prove the estimates excessive. Indeed, it is prob- ably to their interest to press for a higher rather than a lower target, because popular criticism is likely, to be more pronounced should there turn out to be a shortage of steel. At the same time the Board must be very much aware that the financial risk of carrying out any marked excess of capacity lies on the directors and share- holders of the firms, and in such conditions they may be reluctant to press their views as far as they might do If they were sharing the financial When the total future demand has been agreed by the Board there still remains the question of which firm or firms should undertake any expan- sion. There are obvious difficulties here. For if the industry as a whole is doubtful of the need for further capacity an individual firm may be even more so, because any loss will fall not on the industry as a whole but on the firm. At the same time the establishment of a large modern plant may affect the profitability of other firms, and as such firms may be represented on the Federation's Development Committee their sup- port of the project may be half-hearted. In some cases, the possession of a particular ore field, or of a particular expertise, may indicate that firm X should undertake a specific project. But firm X, for purely domestic reasons, may be unready or unwilling to put the project in hand straight away and yet be sufficiently forthcoming to prevent some other firm being allowed to develop the scheme.

The Problem of Finance The third factor is the large amount of capital required. At the present time the industry com- plains that any financial difficulties there may be are due to the threat of renationalisation. There is no doubt that capital cannot be raised on reason- able terms while there is the possibility of an early return of a Government pledged to renationalisa- tion. At present, investors fear they will be inadequately compensated for their holdings, and, in view of the Labour Party's unwilling- ness to make a clear policy statement on this matter, they cannot be blamed for fearing the worst. Even if adequate compensation were assured, large institutional investors might still be reluctant to buy steel shares now because of the subsequent difficulty of reinvesting their money profitably in the event of nationalisation. There- fore, the iron and steel industry has the worst of both worlds so far as finance is concerned. The threat of renationalisation prevents it being as attractive to investors as other major in- dustries: Sod not being nationalised it cannot borrow. at the attractive terms of a State- guaranteed stock. Moreover, it would appear that pri4-es and profit margins have had to be higher than they might otherwise have been in order to assist the sale of the nationalised companies by the Realisation Agency, and in order to pro- vide capital which might otherwise have been raised on the market.

There is, on the other hand, no guarantee that if the nationalisation threat were removed the in- dividual steel companies would be able to raise the fioance for development to the extent, and at the time, required. There appears to us to be a distinct possibility that particular development projects might, even if the threat of nationalisa- tion were removed, require State financial assistance in the future. Further injections of public money in the industry cannot be ruled out, and although that might not' necessitate nationalisation, it would certainly strengthen the case for advances in that direction.

The Need for Expansion ,

As we understand it, both major political parties favour an expansionist policy for the British economy. The Labour Party argues, how- ever, that a marked increase in steel-producing capacity is not only an essential part of its general economic policy, but, more important, that a shortage of steel at any time would, by preventing a rise in total industrial output, prove extremely costly in terms of the national income it hopes to attain. It argues, therefore, that decisions about the level of capacity cannot be left as at present but must be a direct Govern- ment responsibility.

The supporters of nationalisation hold that the present system of ownership and supervision in the industry is unlikely to result in the situation where capacity expands slightly ahead of demand, and that the division of responsibility between the Board and the industry leads to unnecessary delays and frustrations. We think, however, that the advocates of nationalisation tend too easily to assume that all the benefits they claim for public ownership would automatically be realised. It is not true that the mere ownership of an industry by the State ensures that adequate sums of money will be spent on its expansion. Conversely, State-owned industries may be lavishly financed to the detriment of other parts of the economy. Moreover, the benefits which might accrue to this industry from nationalisation could, in the present state of knowledge of how to manage nationalised industries, be outweighed by the disadvantages of a system under which Initiative and enterprise were subordinated to centralised authority. For these reasons we prefer to see some other solution than complete nationalisation.

We are impressed by the strength of the argu- ment that it is desirable that the steel industry should, as the Board puts it, 'have a margin of productive capacity in excess of that needed to meet the estimated demand at any particular time.' There appears to us considerable doubt whether the industry is willing or prepared to accept this obligation as a matter of general policy, and it seems to us that it is prone to allow short-term considerations (such as the current recession) to affect unduly its long-tent plans.

There are, however, other remedies apart from complete nationalisation which might meet this situation. The question could well be asked whether the Board might pursue a more vigorous policy and be given the power to establish and run plant, drawing the necessary funds from Government sources. This it cannot do at present because its power is limited to making recom- mendations to the Minister. We are not in favour of giving the Board these additional powers. For it would involve sacrificing one of the distinctive virtues of the present arrangements: the existence of an independent authority entrusted with the supervision of the industry without owning any steel capacity.

It is, of course, already open to the Minister of Power to go into production in the steel industry should he think this necessary. It might be con- sidered that if the need for additional capacity was sufficiently great, and the industry was markedly reluctant to provide it, these powers would be used. But unless there were at least some publicly- owned companies we doubt whether these Minis- terial powers could be effectively exercised. For without such a publicly-owned sector the Minister would have to recruit the technical and managerial staff from the private companies.

A Solution This leads us to suggest another solution. At the present time part of the industry has not been denationalised. The equity of fourteen companies is still held by ISHRA, which also has large debenture holdings in many private companies, although these do not entitle it to representation on their boards. The fact that members of ISHRA are appointed by the Treasury emphasises that it Is regarded almost entirely as a realisation agency; and it appears to exercise little or no control over the companies which it holds on behalf of the State.

We propose that the companies which ISHRA now holds should not be denationalised but should, as a permanent arrangement, constitute a publicly- owned sector of the industry and for that purpose be owned and controlled either directly by the Minister of Power or by a public board respon- sible to him. This would mean that the public sec- tor comprised about one-tenth of the industry. We cannot, of course, say whether its size and scope would be adequate. But its largest constituent, Richard Thomas and Baldwins, already has exten- sive interests to which one of the two new strip mills is now to be added. Moreover, companies in the public sector would have the same freedom to develop as those privately owned. The Board should be charged with the responsibility of en- suring that there is fair competition oetween the public and private sectors of the industry.

In short, we believe that the industry would best fulfil its special role in the national economy if it had, as a permanent arrangement, a public as well as a private sector.