1. Economy
October 1, 2015

How should the British government deal with the Teesside steel closure?

By Paul Swinney

This week’s announcement by steel company SSI that it plans to “pause” production at its Redcar plant, with the loss of 1,700 jobs, is a huge blow to the local community in Teesside. It’s clear that government intervention is required to help mitigate the impact of the closure on the local workforce and support them to find new work. But public action to reopen the plant, as many have called for, is unlikely to help the people of Teesside in the long term.

The iron and steel industries have been deeply ingrained in the development and identity of Middlesbrough’s economy for over a century. The discovery of ironstone in the surrounding hills drove Middlesbrough’s rapid expansion in the second half of the 19th century, and by 1911 it accounted for around 17,500 jobs – 15 per cent of all jobs in the city.

But these industries are not the players they once were. Metal manufacturing employment on Teesside has declined sharply in recent decades, falling from 14,800 (8.5 per cent of all jobs) in 1981 to 5,500 jobs (3 per cent of all jobs) in 2014 – a fall of 63 per cent.

Calls for the government to intervene to keep the plant open are completely understandable – the closure of the plant will have a devastating impact on the people who work in these industries and their families. But giving public money to the steel-maker will not secure their jobs. The plant has been mothballed once already, by previous owners Tata Steel in 2009. And continued patterns of globalisation and investment in technology mean that, even if the plant stays open in the future, the industry will continue the pattern seen in all countries in recent decades and employ ever fewer people.

Our research shows that those cities that have performed the strongest over the last 100 years have been those that have been able to adapt to the constant changes in the global economy. They have reinvented their city economies by supporting growth in new industries to offset the decline in more traditional ones. Using state subsidies to keep the plant open does exactly the opposite – it ossifies the local economy, further locking it into an industry with falling employment rather than helping it adapt and create new jobs in new areas.

So what should policy do instead? In the short term there will need to be a focus on offering the people who stand to lose their jobs retraining and other support to help them find work again. In the longer term there needs to be action on improving the skills levels of residents more generally in and around the city, and interventions to improve the ability of Middlesbrough city centre in particular to be able to attract newer industries to offset the decline of jobs in its manufacturing base.

“Rebalancing” has been a buzz word in economic development circles in recent years, often referring to the dominance of financial services. But the steel closure in Teeside reminds us that, for some of our cities, the opposite is true. Those places that are heavily reliant on a few large employers in sectors with falling employment must seek to rebalance their economies so that they can better adapt to the ever changing nature of the global economy.

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Offering subsidies to the company to provide short term respite may seem like an easy answer – but the evidence strongly suggests it’ll do little for the people of Teesside over the long term. Helping cities to reinvent their economies is much more difficult. But it needs to be the overarching aim of policy if we want to see a more prosperous Middlesbrough, and more opportunities for those who live there in the future.

Paul Swinney is senior economist at the Centre for Cities.

This article originally appeared on the think tank’s blog

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