In the world of ‘DIY economics’ steel is as important as ever. Unfortunately, so are the unintended consequences.
Steel always seems to be in the news. George W. Bush imposes tariffs on European imports. Tony Blair helps Lakshmi Mittal take control of steelworks in Romania. And you may have noticed the growing number of cars abandoned at the side of the road. There is a common explanation.
In his 1985 Reith lectures, David Henderson talked of DIY economics – the things that people who know very little about economics know about economics. Samuel Brittan calls the same bundle of confusions businessmen’s economics.
One of the most important concepts of DIY economics is that productive activities have a clear hierarchy of importance. Primary activities, such as agriculture and energy, are particularly significant. The commanding heights of the economy are finance, transport, utilities. Manufactured products are always more important than services. The most important manufacture of all is steel.
There is something profoundly sexist about all this. I once suspected that the emphasis on steel was based on its role in Britain’s industrial revolution. But no one attaches the same significance to textiles. Textile factories mainly employ women, while the popular images of a steelworks invoke heat, sweat and arduous labour. It cannot be an accident that the activities most often disparaged in comparison are hairdressing and cooking hamburgers.
Of course, you cannot build an economy only on hairdressing and hamburgers, just as you cannot build it only on steel. In a complex modern economy everything depends on everything else. Asking what are the most important activities is as misconceived as asking what is the most important link in a chain.
Disentangling the muddled but deep-seated origins of DIY economics is a problem for a psychologist or anthropologist rather than an economist. But one economic consequence is clear. Whenever politicians are given an opportunity to pronounce on the structure of industry, they emphasise steel.
The most extraordinary example was Mao’s Great Leap Forward. In Wild Swans, Jung Chang describes how “peasants were exhausted from having to spend long hours finding fuel, scrap iron and iron ore and keeping the furnaces going”.
Households were encouraged to melt down their pots and pans to provide scrap for China’s industrialisation. Farce became tragedy. “When harvest time came in autumn 1958, few people were in the fields.” The policy led directly to the Chinese famine of 1959-61, in which 30m people died.
But Mao simply took to extremes what others believed. Many poor countries have thought a steelworks is a precondition of development.
Expanding steel output was at the centre of economic development of the Soviet Union. At the fall of Mikhail Gorbachev, Soviet steel production was greater than US steel consumption. It is difficult to understand where all the steel went. The military was a large user. The Russians built farm and construction machinery from solid materials. They had no truck with lightweight products from International Harvester and Caterpillar. Some steel rusted in stockpiles because there was too much of it.
But wherever Soviet steel used to go, it does not go there any more. In the 1990s, Russia and Ukraine became big steel exporters. These eastern European plants are inefficient and the output from them has been falling as equipment deteriorates and as local demand for steel collapses. But investment and management skills provided by people such as Mr Mittal ensures that these countries continue to be big producers. Under his stewardship, Kazakh steel output more than matches the aspirations of the old Soviet planners.
At the same time, developing countries such as India and China have been expanding their output. China is today the largest steel producer in the world. It is hard to be a commercial steel producer in a world where others feel an almost moral obligation to make as much of the stuff as they can. But this is the harsh reality for US and western European steel companies.
Rising supply and falling demand have led US producers to demand protection. Dumping is another figment of the imagination of DIY economists. But a combination of steel fetishism and foreign conspiracy fits the locker- room politics of Mr Bush and his business supporters as well as it fits the industrialisation theories of more cerebral political leaders. To the extent that Mr Bush’s tariffs have any effect in protecting US jobs, they will simply aggravate the underlying imbalances. So long as politicians love steel, steel will always be a political problem.
And those cars at the side of the road? With the fall in steel prices, the bottom has fallen out of the scrap metal business. The materials in a car are no longer valuable enough to make dismantling commercially attractive.
One law that both real and DIY economics have in common is the law of unintended consequences.