AFTER ARDUOUS and angry negotiations, the European Common Market has decided to impose mandatory production cuts on its steel mills. This dispute pitted everybody else against the Germans, who argued that production quotas are a terrible idea in principle and, in any event, won't work. It's also true that the Germans have fewer of the obsolescent, money-losing mills that become particularly vulnerable when markets sag.
The world's oversupply of steel becomes much harder to manage in the periods of slow economic growth like this year and next. The subsidies get more expensive, and the international trade quarrels get more dangerous. At the end of September, the United States resumed giving its steel industry a limited measure of protection against imports. In Europe, well protected as always, imports aren't the issue.It's the shift of market shares -- the jobs -- among the nine countries that make up the Common Market.
Germany is Western Europe's largest steel producer and has done the best job of raising the efficiency of its mills. For the older mills in the other countries, another year of near-recession, or worse, might be fatal. The only way to limit the damage, the Common Market finally concluded, was to cut production about 10 percent for the efficient and the inefficient alike.
In recessions, American steel producers tend to lay off workers and cut output in order to maintain prices. In Europe, the idea of cyclical layoffs is far more controversial, and steel makers there generally cut prices in order to maintain employment. European steel prices have now been dropped one-third since last spring and, for some of the weaker producers, the prospect of financial disaster was imminent. The least efficient of the big producers continues to be Britain's nationalized steel industry, the huge deficits of which the British government is now struggling desperately to control. One of the issues in the Common Market's decision was the distribution, throughout Europe, of the pains and costs of another year of low economic growth. The British, the French and the rest understand perfectly well that mandatory production limits reward the poorest performance and penalize the most competitive. But they also reduce the Germans' advantage. French and British governments are having trouble enough closing down the old mills, without bearing the additional political burden of seeing their production replaced by German steel.
Both in Europe and in North America, governments are searching anxiously for decent and effective ways to manage the transition of labor and money out of declining industrial operations. Failure to find better methods than protection, and anti-competitive production limits, threatens to become a severe limit on economic growth in the 1980s.