London

ATLANTIC

October 1948

on the World today

DURING the next year and a half or more, domestic politics in Britain are likely to be dominated by the Battle of Iron and Steel. Only a cataclysm like war could divert the political parties from the coming struggle over the British Labor Government’s decision to nationalize the steel industry.

Other fields of private enterprise, socialized in the first three years of Labor rule, fall into a different category. British Conservatives offered merely a shadow resistance to nationalization of the Bank of England, coal, railways, civil aviation, electricity, gas, cables and wireless.

In Continental Europe institutions like railroads and the telegraph system were long ago transferred to state possession by governments without a trace of socialism in their outlook. In varying degrees, services now nationalized in Britain recall the “gas and water” socialism which Fabian reformers were espousing about half a century ago. In a broader sense, they are all public utilities. Steel is the only manufacturing industry which Labor has set out to socialize.

Railroads and some other national undertakings which the state has absorbed possess a monolithic character which contrasts with the diversified bits and pieces which make up the steel industry. All sorts of machinery production are tied to steel. So is the output of thousands of articles with steel components— articles ranging from tractors, munitions, and typewriters to bicycles. The steel industry proper is usually inseparable from its finishing subsidiaries. To bring most or all metal and engineering plants under the roof of a National Steel Board, say Conservative critics, would exceed the mandate which voters gave the Labor Party.

There is another difference between nationalizing steel and, say, the coal fields. Under private ownership British steel manufacture has been advancing in efficiency and volume. This compares with the steady decline and neglect of coal output under its former capitalist structure. Many British antisocialists have publicly recognized that private enterprise failed miserably in Britain’s coal mines.

The British Conservative Party has said that if it is returned to office, it will abstain from denationalizing all those enterprises which the Labor Government has so far socialized. When it comes to iron and steel, however, not only the big steel interests and the Tories but British capitalists as a whole are ready to fight, and they enjoy strong support in the United States.

Until now the United States has refrained from intervening in London on this issue. Washington’s formal attitude is that this is a British domestic question. In private conversation, though, highly placed American representatives have warned that Congress may decline to share this benign view. Many American legislators and government leaders hold that nationalization would shackle Britain’s rising steel production and impede the nation’s convalescence. An influential American in the ERP organization expressed the personal opinion that if the British proceed to socialize steel, Congress will cut several hundred million dollars off next year’s Marshall Aid appropriation.

Boom in steel

The main argument of Conservatives opposed to nationalization of steel is that the privately owned steel industry in Britain is booming and that handing it over to the state now would be catastrophic. Every ton of steel is essential for the British export push, for recovery inside Britain, and for Western Europe’s comeback. Why tinker with doctrinaire socialism in a field where private capitalism is breaking all records for output?

At the annual shareholders’ meeting of the big British steel firm, Richard Thomas and Baldwins, the chairman, E. H. Lever, declared: “Our problems will not be solved by ruthless pursuit of political ideologies. It’s extraordinary that at a time when the British iron and steel industry is acquitting itself so well it is apparently the intention of His Majesty’s Government to introduce some form of nationalization during the lifetime of the present Parliament. Faced, as this country is, with the problem of survival, this is not the time to run even the slightest risk of friction in the working of a smooth-running machine.”

When industrialists like Mr. Lever defend the private steel industry, they are fighting for the citadel of capitalism. For if steel goes, they ask, what comes next? Would the giant Imperial Chemical Industries survive? Where is there a comparable dike against state socialism, if the steel dam is pierced?

Why nationalize steel?

Despite formidable opposition, the Government intends in November to lay before the House of Commons the bill for transferring the iron and steel industry to public ownership. Steel nationalization will probably become law in January or February, 1950. Between then and May, 1950, when the next British general election is expected, the Government plans to put the law into operation. The speeded timetable is designed to make it more difficult for the Conservatives to repeal the steel socialization act, if they should be victors at the polls and regain power. Yet an attempt by a future Tory cabinet to revoke the law and hand back steel to private ownership is not to be ruled out.

Why, then, has the Labor Government decided to storm this strong point of British capitalism? Steel production is running about one third above the pre-war rate, but the Government believes it could do much better. Moreover, Labor doubts that this industry will ever fulfill its real mission while being conducted for private profit.

True, in May, 1946, the British Iron and Steel Federation published a development plan. At a cost of 675 million dollars (168 million pounds), new blast furnaces and steelworks were to be built in the following eight years. Leftists scoffed at what they considered the deathbed repentance of an industry over which the sword of socialism is dangling. Commenting on the Federation’s expansion project, a Labor member of Parliament, Ian Mikardo, wrote: “In the past, schemes of capital development have been abandoned in a panic at the first whisper of recession, and we’ve no guarantee that that wouldn’t happen again if the choice were left to the same people.”

Yet even Labor critics acknowledged the technical excellence of some of the owners’ proposals. What they attacked was the plan’s scale. Production in 1948 has been at a rate close to 15 million tons a year. In his pamphlet “Why Nationalize Steel?” G. D. H. Cole, the Labor economist, denounced the Federation’s plan for aiming at a total output capacity of only 16 million tons in 1954 and an annual production of about 15.5 million tons. Professor Cole assailed this target as totally inadequate, considering the arrears of unsatisfied demand accumulated during the war, the need for steel to rebuild Britain and re-equip British industry, and the quest for a vast expansion of exports. The plan allowed for home consumption in 1954 only 1.5 million tons more than were consumed in 1937.

If there is truth in the charge that the steel masters are aiming their production sights far too low, this would gravely impede Britain’s export drive. The following figures illustrate the importance of home steel production to British sales abroad: in 1947, exports of all United Kingdom products amounted to 4548 million dollars; of this total, 2064 million dollars represented iron and steel, machinery, and other articles made wholly or partly of steel.

Lower production, higher profits

The principal charge leveled at the steel industry by its critics is that it has tended to be a restrictive monopoly. Admittedly, British steel production increased in the 1930’s, mounting from 7 million tons in 1933 to 13 million in 1937. But this rise in output was accompanied by an actual drop in exports over a long period. By 1937 Britain’s total steel exports were only 2.7 million tons, compared with nearly 3.8 million in 1913. Safe behind a high tariff wall and sheltered by their cartel with German and other European producers, the British trailed on the world market. Concentrating on sales at home, their exports went mainly to the Empire, which was earmarked for Britain under the cartel agreement.

Britain could ill afford to lag in steel exports. The entire British economy relies very largely on marketing capital goods abroad. Undeniably, the British steel industry failed to keep pace with a growing world demand. The Labor Government argues that, eager for higher profits, the steelmakers restricted their productive capacity in order to bolster monopoly prices.

While world prices tobogganed all along the line after the 1929 crash, the price of British steel products was at first maintained and then advanced well above the 1929 level. This pricing policy hampered many British exports, for the cost of steel affects the price of most things Britain makes and sells.

Wanted: more steel for export

The advancing price of steel is now becoming an even more acute problem for Britain. With the first signs that the sellers’ market is yielding to a buyers’ market, it will be absolutely essential for the British to hold down their export prices to a competitive scale. To gain and keep a bigger slice of the world market, Britain must enlarge its steel output. It must reckon with brisker U.S. rivalry, with Germany’s return as a great steel producer, and with growing competition from France and other steelmaking nations. Expansion of productive capacity is the remedy. But it is always tempting, from the private shareholders’ standpoint, to keep capital costs low by renouncing construction of plant which may be partly idle during a trade lull.

This is the primary motive for Labor’s decision to nationalize steel. As Cole puts it: “Steel is a key industry. Its pricing policies affect the fortunes of many other industries, including those on which the long-run success of Britain as an exporter chiefly depends. It has a natural strong tendency towards monopoly. The firms are large and few, and because of the high cost of plant construction the entry of new competitors is extremely difficult or, in many branches, impossible without assent of firms already in the field.

“It is an industry in which, because of technical conditions, it pays the profit-seeking firms best to keep total productive capacity down as near as possible to the minimum level of expected demand, and to maintain high prices rather than pass on the benefit of technical economies to the consumers. Finally, because of its few firms and its tendency to monopolistic organization it can easily enter into restrictive international agreements with steel producers of other countries, and thus produce conditions of scarcity and high prices over a wider field.”

It appears established that steel industrialists in Britain also resisted extension of productive capacity during the war, because they were anxious to avoid being saddled in post-war years with plant which might be unprofitable. They chose to import United States steed.

Too much monopoly

Labor has an answer, too, to the antisocialist protest that, unlike the unified coal mines, steel production is too intermingled with the engineering and metal trades to lend itself to state ownership. Iron, steel, and much engineering output is in comparatively few hands. A few dozen businessmen control the six big steel concerns and, through interlocking directorships, many lesser companies. Mr. Mikardo has pointed out, for instance, that 463,000 tons of heavy rails were manufactured in eleven plants in 1937, whereas it is now proposed to produce 650,000 tons in only four plants. Of building and domestic castings, he says three fifths of the total output in a hundred factories belongs to only three ownership groups.

To its economic reasons, Labor adds the social and moral contention that the steel business must be removed from private hands because of the marriage of steel and armaments. The indecency of harvesting profits from weapons of death has often been underlined by socialists, pacifists, and liberals. Labor further holds that leaders of the steel industry forfeited public trust by sharing and exchanging secret patents and supplies with potential enemies, even on the verge of war. They cite American and British dealings with Germany and Japan right into 1939.

Leftists usually ignore the fact, however, that nationalization itself is not necessarily a guarantee against the liaison between steel and war. An aggressive state which owns or controls the nation’s steel industry is easily capable, as Hitler showed, of abusing that power.

If steel manufacture becomes a state monopoly, runs British Labor’s argument, it will no longer be conducted for profit. Britain has an insatiable need for capital equipment both for export and for modernizing the country’s outworn, antiquated production apparatus. A nationalized steel industry, say Attlee, Cripps & Co., would rid itself of restrictive practices and expand, regardless of dividends.