32: Mining the market
Job-creation to solve structural unemployment
The problem: major plant closures
Often, coal mines or steel works are the only major employer in a locality: indeed, such areas tend to be company towns. So what assistance can be provided to the workforce when outdated enterprises are finally forced to cease operation? Must people be forced to leave, or spend their lives on state benefits?
The idea: invest in job-creation
One alternative is to establish new venture capital companies to help displaced workers start up new businesses of their own.
Example: enterprise in the collieries
The best example of such an initiative is British Coal Enterprise (BCE), originally established in October 1984 after a wave of mine closures in the United Kingdom.
British Coal Enterprises was created to bring employment opportunities to mining areas. By 1996, it had helped create nearly 131,000 job opportunities across the traditional coal-mining areas of Britain - 30,000 more than the company's original goal.
BCE was a subsidiary of the state-owned coal operation, British Coal. Its activities comprised three divisions:
The company aimed to help former employees of British Coal start up their own businesses; and secondly, it sought to assist other companies to start up, expand or locate in traditional mining areas, many of which suffered from serious problems of structural unemployment.
- business funding, which focused on providing start-up and venture capital for new businesses, such as those created by displaced miners;
- a property business which provided managed workspace to the newly-created small enterprises; and
- a commercial job-counselling outplacement service.
Between 1984 and 1996, BCE's Business Funding division committed £101 million into 5,300 projects. This financial support helped to create 54,000 new jobs. On average, every £1 that BCE invested in a business helped to leverage a further £7 from other financial sources. Thus, almost £700 million was raised from additional financial sources.
BCE's workspace division grew to become one of the UK's biggest providers of workspace to small and medium-sized enterprises. Examples include small start-up units in South Wales and a similar development at the appropriately named Springboard Centre, located at (the equally well-named) Coalville in Leicestershire. In the eighteen months from October 1992, it doubled its workspace site numbers in response to a further downsizing of the UK's hugely uncompetitive deep mine industry.
BCE 's retraining and job counselling service helped more than 60,000 former miners into new jobs through its Job & Career Change Scheme, known as JACCS.
Assessment: invest to restructure
Given the state of the world energy market in the 1980s, in which coal could be landed in the UK from abroad cheaper than it could be mined locally, the UK mining industry was facing an inevitable and harsh downsizing. For years, governments had put off the inevitable by pumping large subsidies into inefficient production, and it took Mrs Thatcher to face up to the problem.
But closing down the only employer in many coal-mining areas was not a politically easy option. It was necessary to create new jobs for the displaced workers - but to create real jobs, not other kinds of illusory, state-subsidized jobs. BCE made the structural change a little easier because it helped miners to create or grasp new opportunities for themselves. In other words, it was a programme to facilitate major structural change by investing so as to alleviate the worst of the social problems that would inevitably follow. It was an exercise in investing in order to restructure.
BCE was privatized in 1996. As British Coal's last Chairman, Neil Clarke, pointed out: "An intrinsic element in the sales of the activities of BCE was that the expertise developed within the company should continue to be available in the private sector, for the further benefit of coalfield communities." The business-funding arm and outplacement division was sold to separate management buy-out teams. The workspace business was later sold to a specialized property company.
BCE exported its expertise at managing industrial change to over 20 countries worldwide including the Czech Republic, Russia, Hungary, Slovenia and Portugal.
The work of BCE was mirrored in other large nationalized industries, such as steel (with the creation of British Steel Industry Ltd - now UK Steel Enterprise Ltd), that were privatized in the 1980s. In downsizing their activities in response to market conditions, industries such as shipbuilding and steelmaking - which before privatization was subsidized by the British taxpayer to the tune of £1 million a day -were obliged to shave many thousands of workers from their payroll. Those made redundant had to look for new employment opportunities, but when people found new jobs, these tended to be real jobs, supplying goods and services which people wanted to buy.
In acting as a catalyst for this industrial change, organizations such as BCE performed an invaluable service. Inevitably, not all the businesses founded with the help of BCE proved to be successful. Many of the businesses that borrowed from it had been turned down by commercial banks, and often with good reason. A significant proportion of businesses experienced difficulties in servicing their loans from BCE. In its last set of accounts, British Coal was obliged to make provisions of £16.6 million on outstanding loans of £26.6 million. And yet, the company cannot be judged on its balance sheet: its real value was its support for those enterprises which succeeded and grew, thereby swallowing up much of the unemployment that structural change had created, and generating real opportunities and prospects for local people.
UK Steel Enterprise, meanwhile, has provided £50 million to over 2,400 businesses. Set up by British Steel in 1975as British Steel Industry Limited, and now a subsidiary of the privatized Corus Group, it has the same objective of helping economic regeneration and development in those parts of the UK that are affected by change in the steel industry. It does this directly by helping small businesses, both new and existing, to grow and create opportunities.
Some £40 million has been provided as loan or share capital, the rest in other ways. The company continues to invest around £2 million of risk capital in about 50 businesses each year.
Some of the help is practical: UK Steel Enterprise has developed 570 self-contained workspace units, of which it currently retains about 250 (totalling quarter of a million square feet), making them available to small businesses on flexible terms.
The jobs created by such initiatives can last and can help revivethe whole area. For example, an industrial estate built on the site of a former colliery in the town of Consett became home to a new company, Derwent Valley Foods, whose innovative Phileas Fogg snack range now sells around the world.
For further information:
- While it was operational as a British Coal subsidiary, British Coal Enterprise published an annual report and accounts.
- Contemporary press reports are available through newspaper websites and there were a number of debates and questions about BCE's activities in Parliament (for details, consult Hansard).
- UK Steel Enterprise can be found at www.uksteelenterprise.co.uk
- Adam Smith Institute (1983) Omega Project: Energy Policy: www.adamsmith.org.uk
- The British Coal Enterprise and British Steel Industry approaches to job-creation following industrial restructuring are mentioned in Pirie, Madsen (1997) Blueprint for a Revolution (download PDF 167kb): Adam Smith Institute (London) www.adamsmith.org.
Copyright 2002: Adam Smith Institute
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