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The end of the game

July 9, 2010
We need strong public institutions, but we need them to stand on their merits, not on convenient arrangements and make-do solutions.
Robert Brooks, Editor

A disappointing, and perhaps misguided, government decision recently may be considered historic in the coming years: It may even have been a positive development. Elected officials have reneged on an earlier agreement to invest in an important industrial project, jeopardizing the manufacturer’s prospects and its workers’ security.

It happened in England. Had it happened in here I probably couldn’t analyze it without having my motives questioned. But, the U.K. government’s decision to cancel a promised, $119-million loan that would have helped Sheffield Forgemasters International Ltd. to finance a new 15,000-mt press gives us a moment of clarity, allowing us to consider anew what we should expect of corporations, governments, and the business they customarily do together.

To recap: Sheffield Forgemasters produces forgings and castings for heavy manufacturing applications, like nuclear power, oil and gas, petrochemical, shipbuilding, and process manufacturing. In March, it proposed to build a new forging press to produce very large components needed in nuclear power plants, like reactor pressure vessel heads, the massive pieces that cap the chambers in which nuclear fuel is combusted to generate heat to produce steam to power turbines. It may be a wise investment. There is a significant global demand for new and rebuilt nuclear reactors, and only one other company in the world is currently capable of forging such large-scale components.

Sheffield Forgemasters lined up some private support for its project, but the U.K.’s former Labour government was set to provide the crucial portion that put the project on track for completion. Then, a new, Conservative- Liberal Democrat coalition government installed in May introduced a round of spending cuts in order to reduce Britain’s ominous budget deficit, and canceled the $119-million loan.

The new government’s energy secretary called the project “a very strong commercial deal … I don’t see any reason why it shouldn’t be able to be financed from financial markets.” It’s true that the value of the loan is small compared to a range of other industrial projects or civic programs, and the proposal is attractive. Certainly, there is demand for the forgings to be produced, so the investment should be sound.

Whether Sheffield Forgemasters can, or will, obtain private capital for the project remains unknown. Is the company, its stockholders and workers, willing to accept the terms that private investors might demand — including, perhaps, control of the company? If it cannot afford or risk the investment on its own, has it any right to approach it?

The British government is mostly out of the manufacturing business, so it would have left Sheffield Forgemasters as-is, gaining only the reflected glory of having fostered the development of nearly 200 jobs. But the new government concludes that’s not its purpose, or at any rate that it cannot afford such a marginal advantage as the public’s goodwill.

The question is this: apart from the comfortable arrangement between the corporation and the government, is this a sound investment? One institution, the corporation, is hesitating for reasons it may not like to acknowledge. Another, the government, must decline because it cannot justify it. Until recently, this would not have been a problem; the two would have worked out a resolution that provided each one some self-preserving credibility.

The problem is not that the investment cannot be done, but that both institutions are unable to proceed the way they have done until now. Each one owes it to its stakeholders to reconsider its purpose. The British government’s decision to back off indicates as much; Sheffield Forgemasters should do the same.

There is more at stake here than a forging press, or 200 jobs, or a viable investment. Free-market democracies need strong public institutions to be function reliably, and in doing so to reaffirm free-market and democratic principles. By way of failure, scandal, collusion, weakness, or indifference, most of the public institutions we recognize — governments, corporations, churches, schools — have not maintained the public’s confidence.

They need to regain that confidence, and an honest reaffirmation of their purposes and goals is the logical approach to this end. Doing so will reestablish their credibility, but more important it will encourage individuals that the ideals we affirm in our social and commercial activities are sound and effective. We need strong public institutions, but we need them to stand on their merits, not on convenient arrangements and make-do solutions.