Community: The Union for Life

Friends

       Thank you for inviting me. I welcome this chance to talk about manufacturing in Wales and globalisation.  Discussion of the issues is timely. 

I start with a declaration of interest – passionate interest in unions, manufacturing employment, and Wales.  And what I will say this afternoon is based on observations through steel-rimmed spectacles. 

My first job was at Panteg stainless steel works near Pontypool.  All my subsequent work has been at the service of the Iron and Steel Trades Confederation which three years ago merged with the Knitwear, Footwear and Apparel Trades Union to form Community. 

Our union represents people in food, textiles and clothing, footwear and other manufacturing industries as well as steel. 

We want to promote British manufacturing. That is always a factor in all our discussions with Corus, Celsa, AlphaSteel and all the companies which work with them in Wales.  We hope to develop similar constructive relations with Falcon Steel in Newport.

We are in continual dialogue with the Government and the Welsh Assembly about manufacturing.

We play a direct role in developing skills by means of our provision of employment and training services through Communitas - our training arm which has helped thousands of working people to acquire new skills and find jobs.

We are pioneering a new form of trade unionism which builds on our longstanding presence in communities once based on traditional industries to serve the common good in localities.    

       We are developing alliances with councils, schools and other educational institutions, and faith groups to restore cohesion and a sense of community so weakened during the last three decades. I hope that this occasion today will help strengthen relations between the Institute and Community.

Our roots are of steel. We represent the great majority of employees in the steel industry in the UK.  Steel is not typical of manufacturing industry but it does very well illustrate the continuing significance of manufacturing to Wales.

It is an extremely capital intensive industry with an outstanding rate of labour productivity improvement and is very high among the sectors adding value to the economy.

Typically, the steel industry in Wales and the UK as a whole has seen productivity increases averaging ten per cent per annum over the last twenty years. Steel workers in Britain along with those in France and Germany are at the top of the global productivity league. Any one who visits a steel mill will see massive continuous processes in operation with very few people directing and maintaining them. 

Typically even a minor investment in the industry costs millions and companies have to make most difficult judgements all the time, especially in the European Union which cannot rely on rapid internal market growth.  But we know that failure to invest in new equipment, in research and development, and in training - as Britain failed from privatisation to 2003 - will bring disaster.

      Notoriously, steel is a cyclical industry and for the last three years we have been on the upswing.     Since the middle of 2004 we have been in a period of boom with most prices rising most of the time.

The global context is highly favourable with massive increases in global demand spurring rapid growth in steel world-wide.  This has encouraged consolidation and increased trade flows but also the expansion of steel-making capacity at a faster rate than growth of demand.  There lie the seeds of the next downturn.

        The industry in Wales must be equipped to meet that phase. And there is one critical respect in which the British steel industry differs from its counterparts in the rest of the European Union and indeed North America. The authorities here are reluctant to intervene to assist nationally. Strict EU competition rules apply but, in virtually all other OECD countries, governments have asserted and acted on recognition of the strategic significance of steel.

      The Bush Administration risked British involvement in the disastrous invasion of Iraq by imposing swingeing tariffs on steel imports - at precisely the time when the UK steel industry was close to bankruptcy.  Allied Steel and Wire did become insolvent that summer.

      The US is not on its own.  The World Trade Organisation has to deal with more steel disputes than the rest of manufacturing together.      It was clear that the shareholdings, interest, and influence of governments in the future of Arcelor had a powerful influence on the tactics Mittal used to win control.

        Contrast that with the little interest in the Tata Steel takeover of Corus. Contrast too the emphasis that Ratan Tata in Mumbai, gave publicly to the strategic, and prestige advantages for India. 

       I am worried about the lack of understanding here that steel is a modern, highly technical, efficient and profitable industry.  Politicians betray a woeful misunderstanding of the continuing significance of steel – like the minister for fisheries who expressed confidence that the British fishing industry would have a thriving future long after the coal and steel sectors are distant memories. 

Why is manufacturing and particularly the steel industry so important?  The Government has a point in saying that the employment story generally has been good.  Wales in particular has been successful in retaining manufacturing employment and in attracting investment, compared with Scotland and English regions.

Well, that in large part is down to the good work of the Assembly and particularly Rhodri Morgan.  

The main political defence is that there are more jobs than ever thanks to the expansion of the services sector and unemployment is down to levels last attained in the 1960s.  

This response will not do.  It is equally true that we have suffered a catastrophic loss of employment in British manufacturing.

Last autumn the number of people employed in British manufacturing fell below three million: it was above four million as recently as 2000.  We are losing manufacturing jobs at a much faster rate than all the other EU countries.

This matters because the economic growth needed to pay for expanding public health and education services will not be available unless the technical advances and productivity growth embodied in manufacturing output feed into the economy.

There is no way that even the most industrious service workforce can increase their productivity at a rate of three per cent a year which manufacturing achieves most years, let alone the double digit improvement regularly attained in steel.

The grim forecast this week that with our ageing population one in 85 of us will develop Alzheimers gives the lie to those who argue that employment in fast food and hotels will take up the slack in the labour market and leave us less dependent on public.  We will need more public resources to cope with changes brought about by demography, not less.

Further, the widening visible trade deficit will one day soon cause a loss of confidence in the country as a site for investment.

Britain imports more and more manufactures and is losing market share to companies in other European countries which have the same or higher labour costs but which do have governments which understand the need to have a strong manufacturing base and a positive trade balance.

And there are the social considerations. Wales is afflicted by problems greatly aggravated by the passing of communities based on traditional manufacturing and mining. The stresses raise the risks of diseases from depression to heart attack, leads to increased crime, marital breakdown, and to drug and alcohol abuse.

We cannot afford to continue to lose manufacturing jobs at the present rate.

But neither can we subsidise jobs in industry. We have to become more competitive continuously and to do so in a globalising world.  I will illustrate this by reference to Tata Steel. 

I visited Jamshedpur last month and saw a first class, modern, and progressive operation. It fully deserves its nomination as the best of the world class steelmakers. The mills were modern, clean, and extremely well-maintained. The plant was operating well above its specifications.

Managers expected to be able to continue to increase production and to reduce costs from the existing plant and new plant which would double their output at the site to ten million tonnes annually.  Another project in Orissa will double production again. 

Tata Steel’s success stems from its access to raw materials, low operating costs, and company culture allied to comprehensive training at all levels for continuous improvement.  It is ideally placed to benefit from domestic demand growing at ten per cent per annum.

Indian per capita steel consumption languishes at one-eighth of the figure for China and there are reasonable prospects that Indian development will boost the world industry as Chinese growth has done since 2004. 

Tata made $961 million last year while Corus operations in the UK and the Netherlands with steel production nearly four times greater made $680 million. That makes the Indian operations six times more profitable than the European.

How will Welsh steel production and employment fare under this super competitive leadership?  I think that the takeover offers unique opportunities to the industry here to increase its competitiveness and profitability throughout the cycle and to sustain roughly the same number of reasonably paid jobs as at present.  

I very much doubt that I would be able to say that if the fortunes of Corus were not tied up with those of Tata.

      There are many mutual advantages.  The takeover gives the new company critical mass and market strength globally. Globalisation and integration in steel have lagged behind most other manufacturing sectors: notably behind concentration among the suppliers of ore and key customers in the automotive industry for example.

      Tata is already 85 per cent self sufficient in iron ore and can source coal and other raw materials easily from its own resources. 

For our part, the UK offers a large and growing market for steel and an experienced and skilled workforce attuned to the challenges of international competition.

Proximity to the large British market is a great advantage because steel is most expensive to ship from abroad.

Importers lack the flexibility and opportunities to provide exceptional service to customers and producing steel through integrated sites like Port Talbot offers major economies, particularly in the use and generation of energy.  

And the Welsh industry will become for the first time part of a global enterprise. Tata paid nearly £7 billion to take advantage of synergies and to make full use of the assets of the British and Dutch elements, including its know-how and technical excellence.

The investment was sound - based on cool assessment of future trends.  It corrects weaknesses which have sorely afflicted the industry in the past.     

So Community views this major step in the consolidation of the steel industry as real progress. Whether we succeed or not in Wales will in my view depend on three important conditions.

First, we have to raise our game and ensure that we can produce steel slab so efficiently that it does not pay Tata to import slab. I believe that in Wales we the management and workforce are well on course to achieve this. The trade union role is vital in Port Talbot and Llanwern and our members are rising to the challenge, difficult though it is.

The second condition involves a range of public policy options.  We must be able to compete on equal terms in Europe and in the world.  Governments and intergovernmental institutions have shown that they have a positive role to play in steering globalisation to benefit national economic development.

This role for government is well understood in other EU countries: I am convinced that it is not properly exercised here.

What should the Government do? The Government should reject the siren calls from Peter Mandelson in Brussels urging the abandonment of basic instruments to prevent dumping and other unfair trading practices.

The Government should press Europe to resist the targeted and unfair efforts by China in particular to penetrate and conquer EU markets.  China is increasing steel output by twenty per cent while Chinese demand is increasing by ten per. Half of the additional production - over 60 million tonnes – will be exported – and Europe may well take 10 million tonnes.

Unlike India, China has no access to cheap ore and energy but Chinese steel is sold in Europe for less than the price in China.  Sales are helped by manipulation of the undervalued Yuan.  

Costs at home are kept down by brutal repression of independent trade unions and wicked neglect of safety and health. In the last two months at least 37 Chinese workers have been killed in accidents in Chinese steel plants.  The EU must insist that China abides by the rules of the game if it is to continue to have such easy access to EU markets.

Second in this group of factors, the British Government needs to address manufacturing needs through energy policy. Electricity prices for industrial customers were about fifteen per cent higher in the UK than in Germany and France last year.

The margin of disadvantage has been reduced but higher costs and limited availability bite deeply into the profitability of Welsh plants. Average prices for electricity remain higher here.

Third the EU Emissions Trading Scheme must be applied fairly across the EU and EU governments must ensure that European efforts to curb global warming are not rendered futile by pricing European production out of world markets. 

We should be in the forefront in combating global warming.  We should protect the interests of generations yet unborn.  But this involves mutual sacrifices for the common good:  if we act alone as Europeans there would be no global benefit. 

The US and China account for the greatest proportions of carbon dioxide emissions. Neither has shown much sign of going beyond their narrow, short term and selfish interests.  That was clear from the G8 summit last week.

Perhaps there will be real change in the main polluting countries: perhaps they will respond to an appeal to solidarity. But in my experience the force of argument needs occasionally to be supplemented by the argument of force.

It would be utterly pointless if in Europe we priced our products – especially metals and heavy engineering - out of European markets and then imported products from countries disregarding the need to combat climate change. More carbon dioxide would be released into the atmosphere and our people would be without jobs. 

In the EU we should use our undoubted influence to ensure that would-be exporters to the EU cannot exploit an unfair advantage springing from their refusal to act responsibly on climate change.  An environmental levy on such imports into the EU should be imposed.  It could raise funds for climate-saving measures.

And from a Welsh point of view we must insist that there is a level playing field in the operation of the EU Emissions Trading Scheme.   The Government admitted in February that Port Talbot was disadvantaged by the perverse and highly damaging new entrant reserve provisions in phase 2 of the Scheme.  This element should be abandoned.

This was bad enough but now I hear that  Plaid Cymru, the Tories and the Lib Dems want the Assembly to handicap Wales alone by setting an annual three per cent target to cut in carbon emissions. 

The Tory leader made it quite clear that in his view our precious steel jobs are expendable; that employment at Port Talbot specifically should not stand in the way of putting an irrational and arbitrary burden on industry in Wales. That would be wholly irresponsible, reckless, and potentially ruinous for Welsh manufacturing.

Not one ounce of carbon would be saved: almost certainly net emissions would increase. Conservative governments in France Germany, Poland and elsewhere would rejoice that their steel industries would be able to pick up the slack left by driving the industry out of Wales. 

Finally in the area of public policy, we ask the Government to have a new look at procurement in the UK and ensure that public purchasing in Britain is at least as favourable to national producers as it is in other European Union countries. 

I have seen enough in the operations of Corus in the EU to be convinced that the French and German authorities to name but two actively intervene to promote sales and employment for locally produced output.

And the third crucial condition for the success of the Welsh steel industry and I dare say of Welsh manufacturing is the continuing development of information and consultation between companies in Wales and independent unions of their employees. 

We still have problems but I am happy to say that consultation about major decisions has improved immeasurably in the last four years since Sir Brian Moffat retired in shame from Corus and Celsa moved into Wales.   The operations are more efficient and competitive and most jobs are more secure.

There are always difficult and unpredictable problems.  They will become more complex with globalisation and only through concerted action and planning involving the unions will our industry develop the trust and confidence needed to tackle and resolve them.

Thank you.