In UK, Slump Poses Challenge To Support For An Open Economy

In U.K., Slump Poses Challenge to Support for an Open Economy

Wall Street Journal
MARCH 5, 2009

GRIMSBY, England — In this Northern England harbor town, 70 Italian workers spend their downtime on a former military barge moored behind a tall steel fence.

The Italians are employed expanding an oil refinery near here — a situation that would have gone unnoticed during a 15-year span in which Britain relied on foreign companies and workers to fuel a remarkable economic boom. But after recent protests by British workers, the Italians are bused to and from the barge, where they are ushered back on board by a guard.

On Wednesday U.K. Prime Minister Gordon Brown addressed the U.S. Congress, striking an antiprotectionist note. But with the U.K. in a deepening recession, the British appear to be undergoing a mood swing when it comes to globalization. The small band of Italians became the focus of wildcat strikes last month by an estimated 2,000 workers at power plants and refineries across the U.K. Their message: British jobs for British workers.

Workers at the Immingham docks wait to unload a ship from Spain that is due to pull in to the docks. Immingham docks are the largest commercial docks in Britain, although business has been falling recently as trading declines due to the recession.

“If you're sat at home unemployed with a house full of kids to feed and there is a power station going up, then course you are not going to like” seeing foreign workers take jobs, said Billy Bones, a British pipe fitter who works at the refinery, over a drink at the Jolly Miller pub.

The U.K. has far from slipped into widespread xenophobia. But sentiment is shifting in a country that prides itself on openness to foreign labor and investment.

U.K. government bank bailouts come with demands to lend at home. Public anger over a plan to sell a large stake in the U.K.'s postal service has been compounded by the fact that two foreign companies, one Dutch and one Danish, are being touted as likely buyers. In a recent survey, immigration was seen as the country's third-biggest concern, after the economy and crime, say pollsters Ipsos MORI, leapfrogging unemployment this month.

All this presents a difficult balancing act for Mr. Brown, long a proponent of globalization. In Washington, he addressed a Congress that recently raised trade worries around the world by inserting “Buy American” provisions into the $787 billion economic stimulus bill. Mr. Brown said: “So should we succumb to a race to the bottom and a protectionism that history tells us that, in the end, protects no one? No. We should have the confidence that we can seize the opportunities ahead and make the future work for us.”

Workers leave Total's Lindsey oil refinery after a day's work. Strikes broke out last month over disputes caused by an influx of foreign workers.

Unemployment in the U.K. hit 6.3% in the fourth quarter of 2008, up from the boom's low of 4.7% in 2005. Projections from forecasting firm IHS Global Insight show it climbing as high as 10.5% in early 2011.

Government figures indicate the number of British workers in the country declined by 234,000, to 27 million, in the last quarter of 2008 from the year-earlier period, while the number of foreign workers climbed 175,000, to 2.4 million.

That's why seemingly routine events now can provoke outrage in some quarters, like the recent award by the government to a Japanese-led consortium of a contract to build and maintain a fleet of high-powered trains. Bob Laxton, the member of Parliament for Derby, the city with the U.K.'s last train manufacturer, called it “a crass decision which gives the Japanese an opportunity of getting into the U.K. market.” The government says parts of the train will be manufactured in the U.K.

For the past decade, Mr. Brown's Labour Party continued the work of the previous government by removing obstacles to investment and foreign ownership. From 2004 to 2007, foreign investment accounted for 7.4% of the U.K.'s gross domestic product, compared with 1.4% in the U.S. and 1.6% in Germany, according to data from a United Nations Conference on Trade and Development.

Immigration to the U.K. has tripled under the Labour government as the country made it easier to get work visas and other measures. The U.K. became one of only three European Union countries to allow workers from 10 new, mainly East European members of the EU.

Now, Mr. Brown is trying to manage the downturn by injecting government cash into domestic industries and guaranteeing lending — but without raising barriers to open markets. While Mr. Brown has made it clear that British banks need to pump money into the local economy, he said in a recent interview that he doesn't want this to be protectionist.

Workers tear down a former fisheries building on the docks at Grimsby, once Europe's biggest fishing port. The newly cleared space will be used to store imported wood.

Any protectionist campaign here — such as a “Buy British” effort — would face another problem: There isn't as much left to protect in a country where manufacturing accounts for 14.3% of the economy, compared with 21.6% in 1995. There are, for instance, few British makers of toys or consumer electronics, and no significant British-owned car makers left.

In Germany, Europe's largest economy, manufacturing accounts for almost 24% of output. In the U.S., it accounts for even less than in the U.K., at 11.7%.

It is also harder to be protectionist in the modern world, with countries bound in trade groups such as the World Trade Organization and the EU. In the 15 states that have been members of the EU since 1995, every citizen has the same legal rights in applying for a job.

The towns of Grimsby, once a fishing harbor, and nearby Immingham show how openness has changed Britain. As the country lowered trade and investment barriers, the two towns became home to the largest ports in the U.K. Trade boomed, overseas firms took over local companies, and Grimsby's factories welcomed foreign workers.

The recent strikes at Immingham's Lindsey oil refinery began with local workers accusing French owner Total SA of not letting them compete for jobs on an expansion of the refinery and bringing in foreign workers who undercut their salaries. It ended a week later when Total offered to allot to U.K. workers 102 of 200 temporary construction jobs at the refinery.

“We have not, and will not, discriminate against British companies and British workers,” a spokeswoman for Total said.

The situation caused discomfort for Mr. Brown. Long used to lecturing against protectionism, he found himself on the receiving end of finger-wagging as Italian politicians and business groups told him not to give in to economic nationalism.

The ports here, perched on the Humber estuary, are nearly unrecognizable from the outposts they once were. Foreign oil companies like Total and ConocoPhillips Co. of the U.S. spent hundreds of millions of pounds expanding refineries. Immingham and Grimsby ports' owner, Associated British Ports, was taken over by a consortium led by Goldman Sachs Group Inc. in 2006.

“The old English shipping and engineering firms and port-equipment manufacturers have gone from the Humber; now it is global names,” says Peter Aarosin, who arrived in the area from Denmark 30 years ago and runs RMS Group Holding, a shipping company.

From 1995 to 2007, trade in and out of the Grimsby and Immingham ports increased 52% to 66.3 million tons, as international companies such as Volkswagen AG of Germany and Toyota Motor Corp. of Japan and Danish shippers DFDS A/S moved goods. Local governments estimate around 5,000 people work on the port, and indirect employment generated by port activity totals around 15,000 jobs.

Locals say they saw benefits in welcoming the outside world. Ian Mitchell, a former manager of a food plant, says its Icelandic owner, Bakkavr Group, put more money into local operations than previous British owners did setting up a new factory. And immigrant workers, he says, were “the best answer to a difficult question. It was very difficult to recruit English people for those positions who would turn up every time and every day.”

Today, the docks take up almost a square mile of Immingham's coast, a noisy jumble of containers, giant cranes, coal heaps, ramp ways and warehouses, in which even large ships look lost.

Yet as the boom turns to bust, some foreign companies here are cutting back. U.S. chemicals maker Huntsman Corp. closed a plant in Grimsby, with the loss of 200 jobs. Danish shipping company DFDS A/S shed 10% of its 700-strong Immingham work force. And Bakkavr closed the Grimsby food plant where Mr. Mitchell once worked and another site, with the loss of 530 staff.
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Last month, the U.K. said 104,000 people lost their jobs in the last three months of 2008, the highest figure since comparable records began in 1995. On a recent day, Danny Bestwick, 27 years old, was looking for work at an Immingham job center.

“Immingham has been left behind. Money doesn't seem to get spent here, and yet we have these docks,” he said.

Mr. Bestwick, who worked at a local refinery and in food factories, has been unemployed for six months. His sister, fresh out of college, and mother, a psychologist, are also unemployed. More of his friends are being laid off, he says.

In Immingham, the political landscape is shifting away from the Labour Party, which has ruled the country for 11 years. Immingham's three local councilors are, for the first time, all from the opposition Conservative Party.

“Door to door, people are saying they want a change, that things have not gone as expected with the open economy,” says Stuart Swinborn, a Conservative councilor. He intends to campaign on this issue at the next national and local elections, which Mr. Brown has to call by mid-2010. “Britain comes first in any crisis, and charity should begin at home,” he says.

Resentment isn't limited to the towns that saw the recent strikes. In a suburb of the northern city of Stoke-on-Trent, one engineering company is trying to keep things British. Rayne Precision Engineering Ltd. has collected almost 1,000 signatures on a petition seeking to protect British manufacturing. The company plans to take it to No. 10 Downing Street and Prime Minister Brown.

“Manufacturing in Britain has been allowed to die, it's had no support from the government and companies have been allowed to be taken over by foreign firms,” says Colin Todd, the company's commercial director.

Yet Rayne has benefited from open markets. It has hired foreign workers and one of its biggest clients does a large export business. Because of a local shortage about two years ago, around 70% of its welders were Polish. “Labor was scarce, and we needed to employ people,” says Mr. Todd. One of its biggest clients is construction-equipment manufacturer J.C. Bamford Excavators Ltd., a locally owned company which exports around 75% of its products.

As the government spends billions on bailouts, some taxpayers are demanding the money be spent at home. “Of course the cash should be kept in Britain,” says Trevor Oliver, who runs Oliver Construction Ltd. in Immingham. “You can't be a global family, you look after your own family.”

Oliver Construction is suffering from the dearth of credit. Mr. Oliver says his bank, Royal Bank of Scotland, has been reluctant to lend new cash for development. RBS has so far received 33 billion ($46.4 billion) from the government and had some 300 billion of its assets state-insured last week. The fact that it lends money abroad is galling to Mr. Oliver. An RBS spokeswoman said the bank reviews loans on a case-by-case basis, but is “determined to support” small businesses, recently committing an extra 3 billion to do so.

These days, Grimbsy faces what may be the ultimate irony: Even the local fishing industry has partly gone overseas, encouraged by EU fisheries regulations. Once Europe's biggest fishing port, Grimsby now imports much of the fish it handles.

“When I was a child, you couldn't see the docks for the ships,” says Melva Cooke, an Englishwoman who sells fish from a dockside building. “Now it's a ghost town here.”

Mrs. Cooke says her brother now fishes out of Iceland.
Devon Maylie contributed to this article.

Write to Alistair MacDonald at