The announcement arrived with the subtlety of a closing bell on a bad trading day. Hugo Boss the German fashion powerhouse has submitted a bid for a struggling UK manufacturing plant. The plant in question sits at the intersection of two industries that have been trading at a discount for decades: textiles and steel. And as always the workers are left holding the bag.
Let us be clear about the ledger. British Steel a name that once resonated with the clang of industry now sounds more like a distressed asset. The company has been through more restructurings than a zombie company on the London Stock Exchange. Pensions have been slashed jobs have been cut and the government has thrown good money after bad in the name of preserving 'national capability'. But national capability does not pay the dividend. And it certainly does not compete with Chinese steel priced at a 30% discount.
Enter Hugo Boss. The fashion house wants to diversify its supply chain. Brexit has made importing textiles from the continent a costly affair. So the logic goes: buy a UK plant and produce suits closer to the end market. This is not about British industry. It is about the bottom line. And the bottom line says that a UK plant with deflated asset prices is a bargain.
But what of the workers? The bid comes with a condition: a 20% pay cut and a reduction in pension benefits. The unions are crying foul. The workers are facing a binary choice: accept the terms or watch the plant close. This is the harsh arithmetic of globalisation. Capital flows to the highest return labour must adjust. The government is considering a bailout. But a bailout is a deferral not a solution. It merely kicks the can down the road to the next quarterly report.
Let us examine the macro picture. UK manufacturing is a shrinking share of GDP. It now accounts for less than 10% of output. The service sector dominates. And within manufacturing textiles and steel are the laggards. They cannot compete on cost with emerging markets nor on technology with Germany. The government's industrial strategy is a mess. It throws subsidies at politically connected firms without addressing the root cause: lack of productivity.
The Hugo Boss bid is a microcosm of a larger trend. Capital flight from UK productive assets has been accelerating since the Brexit vote. The pound is weaker making UK assets cheap for foreign buyers. But weak currency does not make for strong industry. It merely signals that the market has lost confidence in the UK's ability to generate wealth.
What should be done? The answer is painful. Let the market clear. Do not prop up failing industries with taxpayer money. That money is better spent on education and infrastructure that will enable new industries to emerge. The workers will be displaced but they are already displaced in spirit. Better to retrain them than to keep them in a job that is destined for the scrap heap.
But that is not the political reality. The government will likely step in. Perhaps with a 'golden share' or a loan. This will delay the inevitable and cost the taxpayer millions. The only certainty is that the uncertainty will persist. And in the world of finance uncertainty is the only risk that cannot be hedged.
So the workers wait. They wait for the fall of the hammer. And they wonder if a Hugo Boss suit is worth the price of their pension. It is a bitter pill to swallow. But in the market of life there is no such thing as a free lunch.
