Two sides to the equation

Tweet Fuel poverty is a real problem, and it is one which an increasing number of families are facing.  It is no surprise to see politicians competing with each other to offer 'solutions', nor to see newspapers competing to criticise the situation.  What is a surprise, though, is to see such a high degree of consensus suggesting that the 'problem' is to do with the price of fuel and that the 'solution' is therefore to find ways of reducing it.

For the Tories, in particular, such an approach seems to go against their usual belief in the ability of the market to set prices; not so long ago the idea that any government should intervene in the price-setting process would have been complete anathema to them.

It's true, of course, that the range of tariffs available is both large and confusing; it has become increasingly difficult to work out which tariff is the best one for any particular customer.  Whether that's a 'problem' or simply a 'feature' of a market in which suppliers are trying to compete whilst retaining customers and profits is a matter of opinion.

It's also true that energy prices in general have gone up significantly in recent years, increasing the number of people falling into the category labelled 'fuel poverty'. But whilst large and increasing profits may have played a part in that - blaming the energy companies is a sport that we can all play - it's not the whole truth.  Energy is a commodity of which a rapidly developing world is demanding every greater quantities, at a time when the extraction of some fossil fuels is becoming more expensive and when decarbonising the economy should be an environmental priority.  In environmental terms, using price to reduce consumption is not as entirely bad a thing as one might think from reading recent coverage.

Insofar as there is a pricing problem, it seems to me that it is partly a result of the way in which those who use the least pay the highest unit price; the worst excesses of energy wastage are happening as a result of usage by those who can afford the lower unit price they are often paying.  Adjusting tariffs so as to reverse that situation might be one useful adjustment to pricing which could be done without resorting to full-scale price regulation.

However, it is the other side of the equation, the one which is getting ignored, which interests me.  If people can't afford to buy the quantity of energy which is necessary to ensure a basic level of heating, then isn't it at least a possibility that the 'problem' is as much to do with incomes as it is with prices?  We have a very unequal - and becoming more unequal - distribution of income; wouldn't fixing that long term problem be preferable to trying to manipulate prices to provide relief in the short term? 

Controlling the markets

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Marcus draws attention to the extent to which ‘the markets’ now control policy, with governments being mere bystanders.  The Observer article to which he links also underlines the way in which governments are being changed undemocratically to satisfy ‘the markets’.

Saturday’s Western Mail had a leader column on the Eurozone crisis, which argued that two things are now necessary.  The first is that Germany must take the lead, and the second is that ‘the markets’ must give the Eurozone time to breathe.  I don’t know whether the first will happen or not; but I’m confident that the second won’t.

There is a tendency for politicians and commentators to imbue ‘the markets’ with rather more rationality than is actually justifiable; the idea that they should also show some responsibility or compassion to the people of countries such as Greece and Italy is about as likely as porcine aviation.

The economic idea of the market acting as Adam Smith’s ‘invisible hand’ to match buyers and sellers has long since been lost in the financial sphere, as individuals and organisations have realised that they can make money for themselves by speculating rather than buying or selling anything, let alone investing.  But as with any other type of gambling, one person’s profit is another person’s loss.  And the losers, in this case, are most of us.

If the speculators believe that they can make a profit by bankrupting a country or two, undermining a currency, or bringing down a few leaders, then no appeal to their better nature will stop them.  And even if it did stop some of them, there would simply be others who would pounce on what they would see as weakness to line their own pockets.

That doesn’t mean that the WM leader writer is wrong to want to see the markets giving the Eurozone a break; it just won’t happen voluntarily.  We sometimes seem to forget that the markets are a human artifice, not something with an objective existence of their own.  They were created to fill a social need, but have been subverted in the interests of the few – it’s another example of the 1% and the 99%. 

If we wanted, collectively and internationally, to re-assert social control over them we could do so.  The fact that so many of our politicians are unwilling even to countenance that merely underlines the extent to which those who benefit from the system also control the political agenda.

In many other contexts, people who enrich themselves at the expense of others, even whole countries, would be regarded as criminals.  Why do we allow ourselves to be so beholden to them?

All power to the markets?

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There’s another aspect to this ‘confidence’ business as well.  We are being told by the UK Government that the ‘markets’ have ‘confidence’ in the UK Government’s approach to fiscal policy, and that is why the UK’s credit rating is not threatened in the same way as that of the US.

I’m not sure that ‘markets’ can have, or not have, confidence in anyone or anything.  In this context, the term ‘markets’ is just a shorthand way of referring to the outcome of a whole series of individual decisions by the people who own and control the capital which flows around those markets. 

And what we’re being told effectively is that those owners and controllers of capital like the way the UK Government is approaching the issue, and don’t like the way that the US is dealing with it.

That doesn’t mean that one way is right or the other is wrong.  It merely means that the ‘markets’ believe that one approach is better than the other – from their viewpoint, and in their interests.  Falling in line with that is simply another way of allowing capital to determine policy, and another example of the way in which elected governments have surrendered control.

(Actually, the best argument that I can think of for a deficit reduction programme would be to put ourselves in a position where the ‘markets’ don’t dictate policy to us, but we’re not going to be in that position any time soon.)

I didn’t know quite what to make of China – one of the most expansionist military powers – telling the US that it can’t afford its current level of military or welfare spending; but I bet it didn’t go down too well in the White House.  It did, though, highlight the extent to which China, nominally the world’s largest ‘communist’ state is now a key player in the ‘markets’ due to the level of control it has over capital. 

However, there’s something very incongruous about a ‘communist’ state lecturing the capitalist world on the need to cut welfare for the poorest in society; it’s an interesting interpretation of the international brotherhood of the working class. 

Stark choice

Tweet I enjoyed the article by David Marquand on 'Click on Wales' yesterday, analysing the economic choices being made by the new government in London.

The part that jumped out at me was when he said "If Clegg and Cable are right, they were wasting their time. Capitalism is capitalism: it has to be taken neat or not at all. We do have to choose between the free market and the overmighty state.".

The phrase 'overmighty state' is not one which I would use to describe the alternative; I'd prefer something more like 'collective action', which is what I think that the 'state' ought to be about. And the idea that the choice is quite as stark as that isn't perhaps what Marquand actually believes – it is after all caveated with the bit about whether Cameron and Clegg are right or not.

But the conclusion posited is at one with what I have always believed. Ultimately, we have to make a choice between an economic system based on giving free rein to 'market forces', and one based on intervention and control. It's a choice which I've frequently described as being about whether we serve the economy or whether the economy serves us.

For me, an economic system is a human construct; built by humans, and run by humans. It is not some impersonal force over which we have no control – there is no 'invisible hand'. And an economic system built by humans should be there to serve humans, as individuals (the many, not just the few), communities, and nations.

For too long, politics has assumed that we basically have, and can have, very little control over economics. We should be challenging that assertion much more than we do. Perhaps Cameron and Clegg, albeit unintentionally, are going to make it a lot easier for us to do that.