Why Rover Crashed

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New Labour put the market before jobs, argues The Walrus.

Sanctimony personified, the image of Tony Blair scuttling back from the pope's funeral to turn up at the T&G offices at Longbridge alongside Gordon Brown might have been laughable if it wasn't so nauseating. Having treated what he has now taken to calling 'hard working families' with utter contempt for the best part of eight years, Blair's dissembling performance - dripping with praise for the workforce and its skills - absolutely reeked of hypocrisy. There was none of this when Stephen Byers offloaded Rover into the hands of a bunch of arrant spivs five years ago, principally in the hope that should things go badly wrong (as had always been the most obvious outcome) New Labour could escape the rap.

Decline of power

Unfortunately for Blair and his hapless 'work-life balance' supremo, Patricia Hewitt, the tyres blew on MG Rover at a particularly bad moment in the general election campaign - just after they had been ringing the bells about the marvellous state of the economy and were already struggling to shore up Labour support in traditional heartlands because of disillusion over the Iraq war, privatisation and all the rest. Hence the hand-wringing and gut-wrenching matinee appearance and the subsequent cash injections - which were nonetheless not big enough to make any significant difference to the overall plight of the workforce or to stave off the closure of the plant just a few weeks before the election.

Completely interwoven with these electoral considerations is the entirely justified fear that the shameful decline of the Rover car company might well expose a number of the least well founded, but most often propounded, nostrums of New Labour. The first and by far the most obvious of these is that private enterprise, by its very nature, is preferable to public ownership and, by the same corollary, that private finance is always better than state intervention. As we have seen only too well at Railtrack, London Underground and in countless PFI schemes, this entirely Thatcherite assertion is not borne out by the facts.

The second major fallacy is that state subsidies and/or nationalisation are not viable options. That may be true on purely ideological grounds, and for New Labour that's the main thing that matters. But it can't hide the fact that the government now subsidises the rail industry, for example, to a greater extent than ever was called for during the nationalised era, continues to bankroll the nuclear industry and effectively underwrites much of the business carried out by major arms manufacturers like British Aerospace and Rolls-Royce.

A very good illustration of this was the promise made by T Bliar esq on a campaign-stop to the BAe Airbus aircraft wing assembly plant in Broughton three days after the Rover collapse became public when he promised the company 'launch-aid' for the new A350. Managing director of Airbus UK Ian Gray told the Financial Times he was 'confident' that the government would stump up the cash - about £300 million all told.

What makes even more of a mockery of the government's attempts to disown any responsibility for the Rover fiasco is that the only feasible alternative put forward was to try to resurrect a deal with the Shanghai Automotive Industry Corporation (SAIC) - an entirely state-owned enterprise which seems to be doing a bit better than Rover. And this is not to mention the vast handouts which every so often make their way to companies like Ford and Nissan either to promote inward investment or to forestall any plans to move key plants overseas.

Last and by no means least is the geopolitical background to the whole Rover debacle. According to former Labour members of the European Parliament, Ken Coates and Henry McCubbin, New Labour's 'blind allegiance to Washington' is one of the prime reasons for the collapse of the Rover deal. Why? Because, on the say-so of George W Bush, the British government is preventing the European Union from lifting its embargo on arms sales to China. Condoleezza Rice has made it clear to all and sundry that the US regards the Pacific as its backyard and the EU should keep its nose out. As a result, the Chinese are none too happy with this interference. And Labour's moves at EU level appear to have more or less coincided with the Chinese authorities writing to the British government to say that a deal on Rover was now unlikely.

According to the two Labour stalwarts Coates and McCubbin, Blair's role in all of this has enraged the Chinese government, and in a letter to the Financial Times they explained that 'it is no coincidence that by 22 March, the UK Department of Trade and Industry had received the letter from SAIC calling the whole deal into question'. All the rest, they say, 'is an attempt at cover-up and distortion, to hide where the true problem lies'. And where would that be? 'It lies with the relationship between the venal leadership of the Labour Party and the right wing administration in Washington. This disaster is entirely of the making of Mr Blair and Mr Straw and the workers are what they would otherwise call collateral damage.'

Failed to invest

Why haven't the union leaders mentioned this? Probably because it's political dynamite, raising the prospect that Rover will close because of the government's 'special relationship' with the US more than any other 'inevitability'. Or, put another way, because Blair's a poodle, there's no home for Rover!

With Rover going to the wall the impact on the local economy will be devastating. Not only will most of the existing 6,000 jobs be lost, but an extra 15,000 jobs at supplier companies will also be threatened. And this is to say nothing of the effect on the wider West Midlands economy, as the other businesses which rely on these workers' wages are hit. Both government and union leaders have pinned the blame for the company's collapse on the owners, Phoenix Venture Holdings. Since their 'rescue' of the company in 2000, they failed to invest in new models despite paying just ten quid for the company and receiving an interest-free loan of £427 million from former owners BMW. They have enriched themselves further by building a £17 million pension pot for themselves, while the workforce's pension fund was allowed to drift into the red. They hived off key assets, such as the lease-car business, and the recent talks with SAIC resulted in the £67 million sale of the intellectual property rights to the Rover 25 and 75 models, plus the production line for the K-series engine that goes with them. As T&G leader Tony Woodley put it in a speech to the workforce, they've been shown to be 'greedy, hungry bastards'. The emergence of a massive £400 million hole in the Rover accounts proves further that he's right.

But this leaves aside the fact that New Labour was only too happy to welcome the rescue package put together by Phoenix five years ago, after BMW had decided to sell off and break up the group. This followed a magnificent march through Birmingham, organised by the unions, and supported by workers from all over the country. The resulting deal with John Towers and his associates, which was brokered by Tony Woodley, then a T&G national officer, not only saved jobs, but also got the government off the hook. At the time New Labour ministers breathed a very public sigh of relief. Since then the lack of a coherent strategy at Phoenix/Rover has been obvious to anyone who cared to look. In hindsight, the Phoenix deal was really only a reprieve, given the massive problems facing the company. Not least of these was the fact that as a non-multinational with poor overseas sales, and falling market share at home, massive investment would be required if it was to begin to compete with the other big car conglomerates. Seen in this light, the government's recent involvement is very much a case of too little, too late.

Just as reprehensible has been union leaders' reluctance to pin any of the blame on the government, mainly down to their strategy of reaching a rapprochement with New Labour. The agreement at Labour's National Policy Forum in Warwick last year was based on the unions committing to campaign for a third term, in return for vague promises from the government to deliver on a 'shopping list' of demands. This approach has completely disarmed the unions' response to events at Longbridge. Expectations of a conventional business rescue have been deliberately dampened down, and there has been precious little of an alternative on offer. Any criticisms of New Labour have been deflected by calls for the parties not to make 'political capital' out of the situation.

One result of this stance is that there have been no official calls for a march on the scale of the protests five years ago. But this approach will weaken the unions' hand. If Rover closes without a fight, it will mean many more union members lost in the heart of manufacturing. This will make it harder for the unions to recruit, not easier. In dealing with the crisis at Longbridge, the unions' links to Labour are a hindrance rather than a help.

So what's the alternative? For the mainstream union leaders, even the mention of nationalisation has become a bit like farting in church, but why shouldn't this be a prospect? Like Thatcher, New Labour's credo is that 'you can't buck the market', but the lesson of Rover is that you can't rely on it either. For one thing, the billions being spent on keeping down the population of Iraq would be far better spent on a viable survival plan for Rover. And it's not as if it hasn't worked in the past. Rolls-Royce was nationalised in the early 1970s and today is a global player, though with its ventures underwritten by the government in the form of subsidies and export guarantees.

This is a key point. Despite its free-market rhetoric, New Labour has helped restructure the economy through its approach to those companies it regards as 'strategically important'. It has been prepared to massively subsidise military suppliers like British Aerospace and Rolls-Royce. Why not adopt a similar approach to the huge Longbridge site, with its extensive engineering facilities? After all, other states back their motor industries. The French government has a large stake in Renault, which now owns Nissan, whose UK factory in Sunderland is one of the most productive in the world.

And if going head to head with the likes of Nissan seems like a tall order - and it might well be, given the intense competition and problems around overproduction in the car industry - diversification is always a possibility. Longbridge could be turned over to helping meet the need for better public transport by producing buses or trains or other transport equipment.

But New Labour is unlikely to be receptive to these sorts of proposals without something serious to back them up. A sit-in or a 'work-in' by the workforce would have raised the argument for state intervention in the most concrete way possible. In the short term it could have had the advantage of preventing any asset-stripping and in the medium term it might have revitalised union organisation. Of course, this would have needed to happen quickly. But it would have been preferable to sitting around waiting for the axe to fall. Union leaders like Derek Simpson have long complained about the decline of manufacturing. This was a chance to do something about it but sadly, and unnecessarily, Rover looks set to be remembered as the dog that didn't bark.