Forgemasters get steely response from Cable!

Saving industry needn't pit sentiment against machismoTheorists like Cable say bailing out British firms is pointless. Mandelson's cheque, however, would back a success story

Julian Glover guardian.co.uk, Sunday 6 June 2010 20.30 BST Article historyThere's something sensual about steel. The other day I went to see smoke, sparks and sweat: industry as it ought to be, raw metal pounded and sliced. Retail feels flat; banking is suits; Britain's service sector a fool's paradise compared to making things. Some part of our brain tells us that effort must produce a tangible product, the modern hunter-gather instinct.

Yet industry has been so unfashionable that it is usual to assume this country no longer makes much. There's embarrassment about the collapse of the workshop of the world. Germany does cars, the Chinese do iPads, the Italians clothes – and Britain? Well, there's Land Rover, just about, and pharmaceuticals and JCB and maybe Hunter wellies – but even HP Sauce is made in Holland, and Sheffield is more famous for Meadowhall shopping centre than for cutlery. We do coffee shops and consumer debt.

Get off the train at Meadowhall, though, and you'll see why this assumption is dangerous. Beyond Argos and Primark there is an industrial scene in the Don Valley.

The 200-year story of Sheffield Forgemasters is the story of British manufacturing: the place where they invented stainless steel, a half-mile long hall where crankshafts were made for Spitfire fighters, before the usual postwar mess of nationalisation, privatisation, strife, foreign sale and bankruptcy. Except that this story, unlike those of so many other factories, has a twist: a management buyout in 2005, investment, a growing workforce that showed its commitment by putting its savings into shares in the business, and exports – 80% of production goes abroad.

Now Forgemasters is at the centre of another chapter in the story of industry – picked by Peter Mandelson for an £80m loan before the election, it waits to see if his successor Vince Cable delivers. In a wise speech last week the business secretary criticised what he called the anti-market "new interventionism", "micromanaging the economy at the level of individual companies". His theory is sound. The consequences sometimes painful.

Walking around Forgemasters it is impossible not to be stirred: great misshapen lumps of scrap steel, red heat shining through furnace doors, huge presses, and a machining hall where the black crust is cut from immense forgings to produce shiny precision-engineered parts. This factory can do things that can be done nowhere else: I passed the core of a submarine's reactor, lying near the shaft of a power station turbine. There are customers for these products. This is not a dying factory afraid of foreign competition.

The instinctive reaction is to want to help this firm grow. Forgemasters' 800 jobs – and 800 more among suppliers – seem more worthwhile than 800 others stacking shelves in Meadowhall.

It would be wrong to say Britain has let its factories go hang: this is, by some measures, the sixth largest manufacturing country, adding over £150bn a year to GDP. But it hasn't been cool to admit it. Governments and economists, like Cable, warn against picking winners. Rover wasn't rescued, and Labour let Corus shut the Redcar steelworks.

There's been a machismo about non-intervention. Forgemasters is the test. The company was saved from bankruptcy by the state's willingness to take on its pension liabilities but now it is waiting for help of a different kind, Mandelson's £80m loan. The case for the Forgemasters' money is strong. It matches private loans to invest in a 15,000-tonne press, which could stamp out the castings needed for the 400 new nuclear power reactors likely to be built around the world. The only other place that can do this is in northern Japan.

Yet Forgemasters is profitable and growing. So why does it need government help? The dilemma has buried other industrial firms. Forgemasters, independently owned, is in City terms small, its £12m profit a blip on a bond traders' screen. The investment it needs is larger than the value of its equity and banks are reluctant to back a business that went bust a few years ago. Much private money is being put into the Forgemasters deal. But government help makes raising it easier.

The management could sell out to a bigger company able to raise all the cash privately, and they aren't short of suitors. But the buyer would surely be foreign – there are hardly any big British engineering groups left – and Forgemasters' knowledge and order book, and maybe its jobs, might go abroad, too.

Should government step in? Mandelson said yes. Cable's instincts say no. Both make a good case. Cable argues skills matter more than bailouts; he does not worry about foreign ownership; he thinks the chances of the government backing the right companies is small. Mandelson helped a few firms, with small dollops of cash. But to Forgemasters that £80m could be transformative, and Sheffield won't easily forgive local MP Nick Clegg if the coalition says no.

It isn't as if non-intervention is a doctrine consistently applied. All parties are happy to promise what government will do to create green jobs. The state can't pick winners, say the theorists, yet Forgemasters are already winners. It would be a pity if speculative future industries attracted more support than present success.

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