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Andrew Glyn

Uneconomics of pit closures

(December 1984)

From Militant, No. 729, 14 December 1984, p. 5.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

A recent report by leading accountants which backed the NUM’s arguments that the government’s calculations of the cost of pit closures vastly underestimates the effect of redundancy pay, dole and lost tax was banned from the pages of the Accountancy magazine and severely embarrassed the government. Ironically one of its main authors is Price Waterhouse professor of accountancy at UMIST. ANDREW GLYN, a leading figures in this debate, returns to the attack:

OPERATING LOSSES certainly do not in themselves justify closure. They do imply that the value of the coal produced is less than the various costs attributed to the pit. But to conclude that the pits should be closed presupposes that the resources which those costs represent would have been used elsewhere to produce something of greater value.

If on the contrary, those resources (both workers and equipment) would otherwise be idle, there is no real cost to society from their use in producing coal. Society as a whole gains the value of the coal. The miners gain the difference between their take-home pay at work and what they would receive if unemployed. If the value of the coal they produce exceeds what they gain then the rest of society benefits as well (since costs of closure exceed operating subsidies).
 

Closure costs

Four pits, whose scheduled closure by the NCB precipitated the strike, illustrate the case (the fifth was not producing during the relevant period). Costs of closure can be estimated from the figures for employment, costs and profits in the pits in 1983 prior to the overtime ban (supplied to the NUM by the NCB). Assumptions can be made about the costs to the government of the unemployment generated amongst miners, other NCB employees, workers in supplying industries and in industries affected by reduced spending.

They show that even Snowdown pit, burdened at the time with development work which gave it the lowest sales revenue per miner of all the NCB pits (£103 per week) would cost the government more to close than to keep open. For the other ‘uneconomic’ pits the net costs of closure are even greater, often much greater.
 

Economic

On this basis, not only are all the NCB’s pits ‘economic’ in the sense of making a contribution to production. They are all actually so ‘economic’ that keeping them open benefits the rest of society as well as the workers involved.

The broad conclusion is strengthened by alternative (unfavourable) estimates about the cost of unemployment etc. The two crucial assumptions which are required are that closure would lead to long-term unemployment, and that the output produced by the higher cost pits does in fact have a substantial value (as the NCB accounts themselves assume).

If the unemployment effect of closure was temporary, then the losses of coal output would soon be offset by traditional output in the industries where new jobs are created. Equally if the coal was really worth no more dug out of the ground than left in the pit (because there was no prospective use) then keeping the pits open would simply be a way of subsidising incomes of those involved (requiring a different justification).

For the unemployment effect to be temporary, it is not enough for those whose jobs are immediately lost by closure to find jobs elsewhere (by transferring to nearby pits for example). If no additional jobs are created such moves must be at the expense of other workers who would otherwise have filled the vacancies. The decisive question is what happens to total employment, not the fate of particular individuals.

The only argument advanced for the idea that making workers unemployed will of itself generate substitute jobs is the theory that the increase in unemployment will drive down real wages and thereby (somehow) increase employment. But the persistence of mass unemployment discredits this theory. So it is wholly implausible that pit closure will lead to increased production elsewhere to compensate for less coal produced.

But is the coal from the ‘marginal’ pits really worth anything, given the piling up of coal stocks in recent years? This stockbuilding, however, just like rising unemployment, reflects the government-induced contraction in the economy. If growth after 1979 had continued even at the slow rate achieved after the first ‘oil shock’, then production in 1984 would have been some 7% higher and coal use correspondingly increased.

Coal stocks in October last year before the overtime ban would have been under 30 million tonnes, less than before the disputes of 1971 and 1973. So there is no shortage of valuable uses to which the coal from the higher cost pits would be put, just as there is no shortage of valuable jobs which the unemployed could do.

Labelling these pits as ‘uneconomic’ and casting them out of the NCB’s accounts is just the same trick as redefining registered unemployment to reduce reported numbers out of work. Neither can disguise the damage that is being done to the economy by government policies.

 
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