Tuesday, 19 July 2011

The Job Losses at Bombardier

By Michael Burke

It is widely expected that Bombardier’s failure to win the government contract for new Thameslink rolling stock will lead directly to the loss of approximately 1,400 jobs. This will indirectly cause other job losses in the area around the Derby works as well as in related industries. It will also negatively impact government finances.

The contract has been won instead by Siemens. The fact that Siemens is a German company has inevitably led to expressions of chauvinism on the British press, with the Daily Mail in particular focusing on the company’s national base and the Daily Telegraph campaigning that this is an issue of ‘British jobs for British workers.’ .

It is no such thing. It is instead a product of chronic private under-investment, the absence of any policies to promote production or jobs, declining government investment, the effects of privatisation and the dominance of the City in all aspects of policy. In short, it is a product of Thatcherism and New Labour’s refusal to reverse it.

Decline

The knee-jerk response by large sections of British society to any loss of jobs to overseas competitors is to claim that they are being undercut on pay. But investment (and the jobs it creates) does not flow to the lowest paying producer. In Europe, Bulgaria’s average rates of pay are one-seventh those of Germany yet Germany receives more than 500 times Bulgaria’s level of Foreign Direct Investment (FDI). In fact Britain is the biggest recipient of FDI in the world, belying any notion that ‘British jobs’ are lost through the process of international investment ..

In fact it is the failure of British capital to use that vast inflow productively which is the cause of Britain’s relative economic decline and the consequent destruction of jobs. In one sense, Bombardier is simply the latest example of this trend.

Bombardier

An interesting report by the Guardian’s economics leader writer Aditya Chakrobatty highlights how run-down the Bombardier factory and surrounding industrial park were, even before the latest set-back . This is symptomatic of chronic under-investment. A very valuable academic report highlights the reason for this1[i]. Even compared to the Bombardier operation in Germany, let alone the successful bidder at Siemens, the rate of investment in the British operation was less than 40% of its German counterpart. Further, the proportion of value added consumed by interest payments was three times greater in the British operation.

Government tendering policy compounded these weaknesses. Although the contract remains secret, it is clear that the firms bidding for the work were not simply in the train-building business. The contract stipulated a PFI-style financing arrangement involving maintenance and leasing for 30 years in which, crucially, the bidder would have to arrange the financing for the acquisition of the rolling stock. For a firm already burdened with triple the interest burden, this was an impossible stipulation which added an estimated £700mn in costs to Bombardier’s bid.

This model of PFI-style financing has proved disastrous in all areas, most especially in large-scale transport projects. It is a function of the earlier privatisation of the rail industry including British Rail Engineering Limited, which had produced rolling-stock. The Bombardier plant in Derby is a vestige of that privatisation, having had 5 different owners in the intervening period. It is claimed that PFI deals lower government borrowing and lowers its need to invest. In fact, it inefficiently increases the overall costs of investment and thereby reduces the level of investment itself. Private PFI consortia have features similar to monopolies, and lead to price gouging of the state. In addition, private borrowing costs are always higher than those of government, leading to further costs, which are again borne by the state.

The sole beneficiaries of this adherence to PFI financing are the private consortia members and their financial backers. Since even under the most favourable terms many of these consortia still manage to go bust , the most consistent beneficiary of PFI financing are simply their financial backers among the major banks, who achieve a return irrespective of the failure or otherwise of the project..

Campaign

On July 23rd unions operating in the Derby works have called a demonstration to campaign against the job losses. They are right to do so. But there can be no concession to the reactionary dead-end of ‘British jobs for British workers’.

German labour costs in the rail equipment sector are almost exactly the same as those in Britain adjusted for the exchange rate, €46,382 compared to £44,081. Siemens won the contract because the various owners of Bombardier did not invest in the company, compounded by government policies which represent the interests of the banks.

The campaign should be directed against the government- a demand to publish the contract to expose how loaded it was, for increased government investment in rail and for an end to PFI-style financing, which benefits the bankers, not the workers.

Notes

1. Knowing what to do? How not to build trains, CRESC Research Report, Manchester Business school.

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