Port Talbot closure highlights uncomfortable truth about clinging onto the past

The decision by Tata Steel to shut the blast furnaces at the steelworks in Port Talbot, South Wales, has provoked outrage. Almost three quarters of the 4,000 workers at the plant will lose their jobs.

On the same day that the news broke, the government announced a £500m subsidy for Tata’s £1.25bn proposed investment on the same site. This is to build new electric arc furnaces, which produce steel in a much more eco-friendly way. But these will employ only a few hundred people.

Also on the same day, there was some very positive news. Google announced that construction had started on its £800m investment in a new datacentre in Waltham Cross, scheduled for completion next year. Data centres process, host and store the massive amounts of digital information that is critical for developing AI models.

The company said it was too early to say how many jobs would be created but it would need engineers, project managers, data centre technicians, electricians, catering and security personnel.

This follows on from Microsoft committing £2.5bn at the end of November to expand its AI datacentre infrastructure in the UK. Initial sites have been earmarked in London and Cardiff. A key aspect of the programme is to accelerate scientific discovery, with priority access being given to leading researchers at universities such as Cambridge, Oxford, Imperial and UCL.

The juxtaposition of the news on steel and AI does seem like a classic example of “out with the old, in with the new”. Indeed, the intention even at Port Talbot is to invest in a new and sustainable way of making steel, but with only a small fraction of the existing jobs.

Investment in new technology, in whatever guise, is obviously a good thing for the UK as a whole. But it also helps to spread prosperity.

A key aspect of the Google announcement is the range of jobs which will be generated. Scientists will be carrying out research at the frontiers of knowledge. Managerial posts will be needed. But, in addition, there will be a new demand for “electricians, catering and security” workers. Innovative firms create jobs at all levels of skills.

More generally, an important study by Phillip Aghion at the LSE and Richard Blundell at UCL shows that innovative firms offer a substantial pay premium for low and middle-skilled workers compared to less innovative ones. So innovative firms both create jobs and pay more.

As published in City AM Wednesday 24th January 2024
Image: Chris Shaw – geograph.org.uk/p/41552

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