This is how capitalism is supposed to work, in its raw state. This is what Liz Truss’ laissez-faire supply-side economics policies are designed to enable.
Her name was Elsie. She was in her late seventies. In May, her story was told to the British Prime Minister during a live television interview. During the coldest months of the year, she spends all day circling the local buses because she cannot afford to heat her house, which keeps her warm.
The Prime Minister responded by wildly waving his signature conversational style, before (mistakenly) trying to take credit for introducing free bus travel for pensioners.
In an apparent attempt to make his boss a little less incompetent, at least in comparison, the environment secretary later added that such people should seek help locally and should try to buy cheaper brands of food . It’s unclear if he believed they had previously only scored vintage champagne and the finest beluga caviar.
He also confused his name. Her name was not Elsa. Her name was Elsie.
Elsa was the queen of Arendelle in the Disney movie Frozen. Elsie was just frozen.
(The Environment Secretary at the time was used to people getting his name wrong. His name was George Eustice but was more commonly known among his own Tory colleagues as Mr Useless.)
Last year, an energy supplier sparked outrage by recommending customers cuddle their pets and perform star jumps to keep warm. Boris Johnson’s government has hardly shown itself to be much more sympathetic to the plight of the public or more in tune with the public mood.
Elsie’s story has become a symbol of the crisis faced by millions of ordinary Britons in the face of the highest price rises in decades and, most damagingly, massive hikes in energy bills domestic, which have more than doubled (and perhaps soon tripled) in the course of a year.
Earlier this month, the UK government’s own advisory committee warned that fifteen million people could be pushed into fuel poverty this winter. Thousands, they said, will die.
Meanwhile, the National Health Service has warned the country is facing a “humanitarian crisis”.
Inflation in the UK is now at its highest level in forty years, already above ten percent and is expected to rise further before the end of the year. This month, it was reported that the fall in the real value of wages was at its worst since comparable records began. Two weeks ago, one of the country’s biggest supermarket chains announced it would offer interest-free loans to customers who cannot afford to buy food.
In the mid-1990s, I interviewed a senior conservative official – at the time, who held the post of culture secretary – who suggested that museums and art galleries were terribly important because they offered people a warm place to sit on cold winter days. More than a quarter of a century later, such attitudes seem to persist in some circles.
Earlier this month, even Boris Johnson admitted much more needed to be done to help people pay their energy bills. He did not, however, offer a plan to do so, arguing that it would be more appropriate to leave that to his successor.
The nation’s most influential consumer expert has accused Johnson’s “zombie government” of ignoring the urgency of an emergency as serious as the Covid-19 pandemic. (However, to be fair to Mr Johnson, one might observe that at least he is consistent in his inertia. He also did his best to deny the seriousness of the coronavirus for as long as he could.)
The Prime Minister’s disengagement from this crisis (and, in his final weeks in office, from the rest of his office) was such that, when he finally condescended to speak with suppliers of national energy earlier this month, the Metro newspaper made headlines. title of the page ‘The PM arrives at the meeting’.
This gathering included the German company Eon (which made a profit of £3.4 billion in the first half of this year), the British network National Grid (which made the same profit in the last fiscal year), Germany’s RWE (£2.2bn in the first half of 2022) and Britain’s Centrica (£1.3bn in that period), as well as Uniper and SSE, which each took more than a billion last year.
Transnational fossil fuel conglomerates have also profited from oil and gas supply problems (or at least reduced degrees of competition) resulting from the ongoing war in Europe. This month, Saudi oil giant Aramco announced record profits approaching £40 billion for the second quarter of this year.
BP saw profits climb to £7bn for the same period, their highest level in fourteen years. Shell has promised an 8% pay rise for its non-executive staff and a £6.5bn dividend for its shareholders after announcing a profit of £9.5bn for the period. BP paid its shareholders £4 billion in payments. British Gas’s profits quintupled to £1.34billion in the first half of this year.
Britain’s Labor Party has said that if in power it would levy an unprecedented tax on the profits of such companies so it can afford to freeze the national energy price cap. Last week, the boss of one of Britain’s energy companies agreed on the need to freeze this price cap.
A previous Labor proposal for such a windfall tax was eventually (after some resistance) accepted by the current government. (It had ultimately proved impossible for Mr Johnson’s administration to continue to argue that the tax would discourage such companies’ investment in renewable energy sources, after the BP boss said he would not wouldn’t at all.)
However, Conservative leadership favorite Liz Truss has declared her opposition to such a tax, which she condemned as a left-wing idea that consists of “bashing business”. Profit, she said, is not “a dirty word”. Nor, it seems, for Mrs. Truss, deprivation or poverty.
By contrast, his opponent Rishi Sunak has championed taxing the record profits of energy companies, a policy he introduced when he was chancellor. He also argued that he favored targeted support rather than the “brutal instrument” offered by the opposition plan. However, he doesn’t seem ready to win.
An opinion poll released last week suggested that only a third of voters would support Liz Truss’s tax cut plan, while sixty percent would support targeted subsidies. Yet she maintained a more than thirty point lead among members of the Conservative Party, the only voters eligible to elect the next prime minister.
Ms. Truss’s hostility to the supposedly leftist nature of the seemingly non-conservative idea of targeting those most in need with state “handouts” may remind us in this context of other socialist notions, and in distinguishes that eminent old leftist Karl Marx between ‘use value’ and ‘exchange value’. Traditional conservative market economics espoused by Team Truss would assume that fuel price hikes are simply the inevitable consequence of demand exceeding supply. However, this would not explain the extraordinary leeway that suppliers and producers have found to take advantage of this situation. This profit potential would surely be more limited if the economic value of their products were based simply on their use value, rather than on what consumers cornered by virtual supply monopolies are willing (or can be pressured) to pay for them.
Allow me to present a small anecdotal example of this seemingly irrational phenomenon. My local supermarket currently charges a lot more for petrol than its branch just ten miles down the road. When asked why this was the case, he replied that there was much less competition in the area where I live and therefore he could charge higher prices.
Similar concerns were raised nationwide earlier this year when Boris Johnson’s government lowered fuel taxes, and it quickly became clear that not all retailers were passing those savings on to their customers. An automotive organization reported this month that the gap between wholesale costs and prices at the pump had peaked in nearly a decade.
Prices are not simply determined by costs to suppliers, by overall supply, or even by the usefulness of the product. Where competition is severely limited, as is currently the case in the energy market, they are determined by what producers and suppliers can get away with charging.
The war in Europe has not made Scottish gas or Saudi oil noticeably more expensive to produce. It has simply created an economic environment in which their apparent exchange value has increased – in other words, in which their producers can demand more for their fossil fuels because the number of competing suppliers has been reduced. They don’t have to. They choose to do so.
Although there is ultimately a limited supply of these natural resources, their total global stock is not greatly exceeded by current demand. These fossil fuel giants are simply exploiting a geopolitical crisis to maximize their profits. It was the relatively limited nature of competition in the market, rather than the limitations of supply itself, that made these sharp price increases possible. It’s a situation that everyone in the supply chain has sought to take advantage of. Recent global shocks have provided a justification rather than a reason for this.
This is, after all, how capitalism is supposed to work, in its raw state. This is what Liz Truss’ laissez-faire supply-side economics policies are designed to enable.
This purest form of capital knows the price of everything and the value of nothing. It does not self-regulate. It is not there to create a fairer society or to help those who need it most. Its function is neither ethical nor moral.
Instead, this moral dimension is, or should be, the function of a socially responsible and progressive government. Yet it is unfortunately something that some of those in positions of power, at least here in the UK, seem to have lost sight of.
And that means that this winter many ordinary Britons, citizens of the world’s fifth largest economy, will get cold and sick, and some of those people will inevitably die.