First they shut the Consett works and then came recession but . . . The steel remains: The County Durham town rose from ruin but went to the brink again as the economy faltered. David Bowen found a success story built on the spirit of those who came to pick up the pieces

MEDOMSLEY ROAD, Consett, is one of the best-known streets in Britain. It is, as the television ads tell us, where Phileas Fogg snacks are made, and it sounds suitably cottagy.

In reality it is a bleak, terrace-lined main road leading out of the hilltop County Durham town. The snacks are made just off Medomsley Road, in the distinctly uncottagy Consett No 1 Industrial Estate.

But the jollity of the commercial is genuine in one way: Phileas Fogg snacks, despite their 1980s image, have stormed through the recession. In 1988, their maker, Derwent Valley Foods, turned over pounds 13m; sales today are running at pounds 24m, and the staff has grown from 160 to 240. Roger McKechnie and his co-founders, who sold out last March to United Biscuits, are very wealthy. McKechnie says: 'In Consett, people are saying, 'What recession?' '

He is not typical, as you would swiftly be told by former staff of the 50 local companies that have failed in the past three years. But it is true that, for Consett, this recession has been a gentle zephyr compared with the hurricane of 1980-81.

In mid-1980, the steelworks closed, throwing 3,400 people out of work. Unemployment was the highest in mainland Britain, and a deep gloom replaced the red dust of the steelworks that had long lain over the town.

But by the late 1980s people were saying Consett had been transformed. After an influx of more than 100 companies, they said, the little town had proved the spirit of enterprise had been reborn under Margaret Thatcher.

Others were sceptical: the Dean of Wearmouth coined the word 'consettisation' to describe the creation of low-paid jobs, mainly for women. And the rate of unemployment remained well above the national average.

Who was right? Had Consett's economy become genuinely robust? Or would the entrepreneurial blooms wither as rapidly as they had appeared? To put it another way, was the so-called enterprise culture just another chimera conjured out of the consumer boom of the late 1980s? This latest recession would provide the answers.

When the Consett steelworks was built late in the 19th century, it was one of the biggest in Europe. It used coal from local pits and provided much of the steel plate for the shipyards of the Tyne and the Wear.

In the mid-Seventies, British Steel decided to concentrate production at its coastal sites, and in 1980 the Consett works closed. At the same time, the manufacturing recession ripped away other jobs. By 1981, Derwentside, the district of which Consett is the centre, had 8,900 unemployed - 26 per cent of the workforce. Over the previous four years, two out of three manufacturing jobs had disappeared - from 13,000 to 4,400.

When the 26-year-old Mark I'Anson arrived in Consett in 1981, demolition teams were working on the steelworks, and gangs of men were hanging around on street corners. 'It was awful,' he says. 'Like a scene from a Depression film.'

But he decided to stay, and so became one of the first of the new generation of Consett entrepreneurs. I'Anson wanted to build powerful Unix computers with his colleague, David Liddell. By 1988 Integrated Micro Products was turning over pounds 4m: its computers were widely used in the automotive industry.

IMP was one of the 362 companies that have received official help in Consett in the past 13 years; 185 still exist, 103 of them start-ups. According to Eddie Hutchinson, chief executive of the Derwentside Industrial Development Agency (Dida), the town's success was due to the abundance of managers - many redundant - who decided to have a go on their own; and also due to liberal help from outside. 'Without the pounds 35m from central government, and the involvement of the various authorities, Consett would be dead now,' he says. Its resurrection may have been a triumph of the enterprise spirit, but not of the market economy.

Many of the new companies did well by supplying the booming South, but it was not until 1988 that the good times finally reached the hilltops of County Durham. That year house prices went up by a third: at the end of it a three- bedroomed terraced house could cost pounds 35,000.

Unemployment continued to fall, and by the autumn of 1990 it stood at 3,400, or about 11 per cent of the workforce. This was well above the national average, but many of the unemployed were former steelmen who would never work again and would, eventually, slip out of the statistics.

By now the national recession was taking hold. In Consett few people noticed. 'It didn't come as much of a shock,' says Ed Rogers, a financial adviser who has lived in the town most of his life. 'In the South it came with a bump. Here there was a gentle drop.'

The most conspicuous symptom of downturn elsewhere, the collapse in house prices, simply did not happen. A three-bedroomed house still costs pounds 35,000, to the shock of southern incomers.

Overall, the figures show that Consett's portfolio of new companies rode the recession reasonably well. By May last year unemployment had risen to 4,350, about 14 per cent; now it is back to 4,200. Annual start-ups slipped to single figures, and the number of projects Dida was working on at one time fell from 25 to 15. 'There is no doubt the recession did quell the enterprise years,' Hutchinson says. 'But it certainly did not kill them.'

The nature of Consett's economy means there has always been a reasonably high failure rate: half the 362 companies helped since 1981 have stopped trading, an average of 14 a year. The failure rate accelerated during the recession, but only slightly. Between 15 and 20 companies have gone out of business in each of the past three years. That was enough, however, to halt the growth in jobs. Before 1991, 500 jobs were being added each year; since then, there has been a slight slippage.

In the year to 1993, 15 companies employing 193 people failed. At the same time Dida helped 18 companies in projects that have a 'job-creation potential' of 549. Hutchinson admits the two figures cannot be compared directly: 'The failures give an instant job reduction; investment proposals will take some years to come through.'

The comparative hardiness of Consett's economy must be attributable to the diversity of its industrial base - few industries share the same economic cycle - alongside the fact that new companies will tend to be involved in markets with strong underlying growth.

Derwent Valley Foods was set up in 1982 by a group of food industry managers who believed there was a demand for up-market crisps. They launched the Phileas Fogg brand, and found they were right: the company became the symbol of Consett's regeneration, and the snacks became favourites in the pubs of the South-east.

Although the product was a luxury, dependent on high-spending southerners, it was remarkably unscathed by the recession. 'The frequency of purchase dropped, but the number of customers continued to increase,' McKechnie says. 'And even though times were harder, people were not going to go back to ordinary crisps.'

In March 1993, Derwent Valley was sold to United Biscuits. 'The company had reached a point where it should be exploding,' McKechnie says. 'We had 8,000 outlets, when 350,000 outlets sold crisps: we needed a partner to give us the distribution we needed.'

Balancing this success is the failure of the other star of Eighties Consett, Blue Ridge Care. It was founded in 1985 by David Langston, an American businessman, and grew rapidly as the disposable nappy market quadrupled. But at the end of the decade the big players started a price war and two large customers for Blue Ridge's own-label nappies were lured away. In May 1991 the company, which employed 125 people, went into receivership, and Consett had its first big failure.

To an extent Blue Ridge suffered from the opposite of recession - the market was growing so fast that there was a shake-out, as there is in all adolescent industries. But the downturn did play its part: it made customers more price-sensitive and the smaller, less financially robust players more vulnerable to assault. This was one of Consett's biggest problems, for it was choc-a-bloc with little companies operating in high-growth markets. Integrated Micro Products was another of them.

By 1988 Mark I'Anson and David Liddell had realised that IMP could no longer rely on its original Unix product. It was too popular, and bigger companies were muscling in on the market. So in 1988 they bought a Silicon Valley company called Parallel, which made 'fault-tolerant' computers in which every circuit was duplicated.

IMP intended to take off with these new computers as Unix sales wound down. But while Parallel's technology was good, its engineering was not and the British group had to work hard to fix it. By early 1990, falling revenues and high costs were pushing it close to the edge, and in April that year I'Anson had to arrange a refinancing. As the recession bit, Unix sales tumbled further, and the company cut back the Californian operation and concentrated efforts at Consett. Staff numbers were slashed from 100 to 39, and everyone took a pay cut.

The company was now racing against time to develop and sell a new product before it ran out of money. Then I'Anson found that Motorola, the US electronics company, needed a fault-tolerant computer that would run emergency telecoms systems. IMP started to design one in August 1990; the following April it signed a contract with Motorola, and early in 1992 it shipped its first XM system.

'If the order had come six months later, we wouldn't be here,' Liddell says. Sales had plummeted from pounds 4.5m in 1990 to pounds 2.5m in 1991; the company had gone from break-even to a pounds 900,000 loss. But it recovered fast, and last year made pounds 480,000 profit on sales of pounds 4.8m. Employment is back to 70, including a new R&D; office in Slough.

Liddell says that while the recession swept the Unix market away faster than it would have disappeared otherwise, 'the change in product and market was as important as the general economic outlook. Less than 50 per cent was the recession: the real problem was the product.'

PurePlas almost shared Blue Ridge's fate - but jumped into the arms of a protective giant in time. Keith Stephenson, a former Bowater manager, started making plastic milk bottles on No 1 estate in the autumn of 1988. He was sure the market would grow as people abandoned the milkman for the supermarket. He was right: turnover rose rapidly from pounds 300,000 in 1989 to pounds 4m in 1992.

'The recession worked in our favour by pushing down the price of supermarket milk,' he says. By April last year he employed 65 people; that was also the month he sold out to David S Smith, fulfilling his eldest son's command that he have lots of money. This was not, however, the reason for the sale.

Like disposable nappies or Unix computers, plastic milk bottles were becoming too popular, and his old firm Bowater was steaming into the market. He was very conscious of the Blue Ridge collapse and, he says, 'we were in danger of going the same way'. A big brother would make sure he could survive.

If all companies turn down at the same time, a town's economy is pole-axed. If the downturns are spread, the effect is muted: Consett had a formidable array of recessions which, to an extent, cancelled each other out.

Multiarc is an American company that coats tools and components with a microscopically thin layer of titanium, increasing their life by up to 10 times. It had set up a 'coating centre' in Consett in the early 1980s, and used the generous grants to invest heavily.

In 1987 another Stephenson, Alan, arrived and was horrified to find the plant over-equipped and inefficient. 'It was the largest centre in the world with almost the lowest revenue,' he says. The grants, he said, had distorted the economics of the operation: 'The negative side of a very positive environment.'

Because of its high borrowings, Multiarc plunged straight into recession as soon as interest rates doubled in 1988. 'At one stage we were paying 17 per cent on more than pounds 2m,' Stephenson says. 'By the middle of 1989 we realised there was no way we could make the business grow fast enough to make use of its assets.' He started to trim the operation back.

A year later the mainstream recession arrived, and most of Multiarc's engineering customers cut their orders. By 1992, though, they had changed their tune. Buyers who could not afford to replace tools were asking if there was any way of increasing the life of what they had. Multiarc's engineers would say: 'Why not try this?'

They did and, as Norman Lamont was making his derided 'green shoots' speech, in May 1992, Multiarc saw its business tick up. It had an early recession, and is now booming. The last three months have been record ones and, Stephenson says, 'we're doing three times more than in 1987 with 75 per cent of the people.'

Grorud is a Norwegian company that makes door and window fittings. It arrived in Britain in 1979, and relocated to an old spinning mill in Castleside, just outside Consett, two years later. At first it stuck to fittings, but in the late 1980s established a general engineering division, which grew rapidly. In 1988 it diversified again, into electric stair lifts for the disabled.

Like Consett, Grorud benefited from its diversity. 'Each of the companies has been hit, but at different times,' says David D'Arcy, the finance director. The lift group was hurt by legislation in 1989, but has been growing fast since. The fittings business was affected in 1990 and 1991, but recovered strongly last year. And the engineering business managed to keep expanding with new business thoughout the early years, only to come something of a cropper last year when a big customer postponed a project.

As a result, the workforce could be switched between divisions, and there were no compulsory redundancies. Grorud has doubled its staff since 1989, and now rivals Derwent Valley Foods as the largest factory around. It turns over pounds 20m, and has outgrown its Norwegian parent.

It would be comforting, as the recession lifts, to see a new flow of entrepreneurs knocking on Dida's doors. So far, that is not happening. 'There are fewer teams looking to start up than there were in the early Eighties,' Hutchinson says. 'It is certainly worrying locally.' He hopes, fingers crossed, that as the economy picks up, opportunities will appear and will be closely followed by people wanting to take advantage of them.

Despite Consett's relative resil ience, it can by no stretch of the imagination be called a boom town. Its streets are lined with discount shops and, Ed Rogers says, 'the general feeling is still of depression. People are cynical - especially about the factories that have opened up, then closed down.' Keith Stephenson says this attitude reflects the way the locals think. 'They are down-to-earth working-class,' he says. 'Most people just want to know they have a job, and what they are paid.' Consett has produced few entrepreneurs of its own; for a few years yet the enterprise culture will have to be imported.

'Consettisation' - low wages, mainly for women workers - is nonsense, Eddie Hutchinson says, and Keith Stephenson confirms that his wage bill is only 2 to 3 per cent lower than it would be in the south. What is true is that wages are lower than they used to be: the townspeople remember their pay packets from the steelworks, and are not impressed by those coming out of No 1 estate.

Hutchinson understands why morale is still a problem. 'Unemployment remains relatively high. It's hard not to have a degree of pessimism. But relative to the 1980 position, we have moved a million miles.'

Perhaps the next stage of the redevelopment plan will quiet the cynics. After eight years and pounds 11m, Europe's biggest reclamation project has turned the steelworks, complete with giant factories, smokestacks and marshalling yards, into a field with eight cows. It is a remarkable example of how to make nothing from something. Now the aim is to turn that field, which is perched spectacularly on the edge of the Derwent Valley, into a science park, with offices, factories and 'executive housing'. As another part of the pounds 100m Project Genesis - to be funded with joint public and private money - the town centre will be redeveloped. A well-balanced market town with a healthy manufacturing bias should, eventually, emerge.

But it will take time. Consett may be out of the convalescent ward and have survived its first palpitations, but no one yet believes it is ready to go out into the world on its own. 'There would be a problem if it lost its grant status,' Roger McKechnie says. 'There need to be another 100 companies here, and the local infrastructure has to be completed.' Hutchinson agrees. 'Industrial regeneration had to measured in decades. The revival of Consett is a job for the Nineties - at the very least.'

(Photographs omitted)