Posts

Oil Companies, Profits and BBC Bias

As some of you may know, I’ve been popping up on various radio programs talking about Oil Companines. Yesterday, a researcher BBC 3 Counties Radio called me up and asked me in the light of the recent profits from Shell, and the underlying profit of BP, why weren’t we seeing lower prices at the pumps from “the falling cost of oil”.


My reply was that the oil price hadn’t fallen, it had risen from $72 to $82 in the last 6 weeks or so. Secondly, this is priced in dollars. Some of this recent rise has been offset by a rise in Sterling from $1.42 to $1.52, which is why pump prices had remained broadly stable. Oil had, in fact been rising steadily since 2009. The last time petrol was below £1 per litre, Sterling was buying $1.65 and the oil price was $52. Indeed, the rise in Sterling since the budget probably represents a tax-cut sufficient to offset the future rise in VAT. Indeed that alone demonstrates the foolishness of “Keynsian” stimulus as followed by President Obama, and why Coalition style cuts would lead to a richer country.

Furthermore, I said, trying to blame the oil companies for the price of petrol was like blaming farmers for the price of bread. The cheapest petrol around will be sold more or less at cost. The profit being made in the shop, which is why, if you do see ‘pay at pump’ machines, they’re always disabled. Of the £1.129 per litre of the cheapest petrol 57.19p is fuel duty, 10.01p is VAT on that duty, 6.8p is the VAT on the fuel, and just 38.8p or 34% is the cost of the fuel.


That 38.8p pays for the exploration, drilling, extraction, transport, refining, delivery and storage of that fuel. There may be a penny or so profit for BP or shell, but probably not at the cheapest petrol stations. The lion’s share of the £70 from a typical tank of petrol goes to the Government, which means that more is probably spent on out-of-work benefits by the Government from your tank of petrol than goes to BP or Shell, indeed more is probably spent on national defence out of your tank of petrol than goes to their profit.

“Ohh, I hadn’t realised that”. They had clearly wanted an analyst to confirm their prejudice against business and the profit motive. The same questions are asked every time these public companies release numbers. The same answers are given: that excess profit will be competed away, and that margins are very, very low.That there is no conspiracy against the public.

This is bias. It is not a party political bias, but a cultural and econmic one, which betrays a leaning to discredited economic theories which are supported by the party membership of the Labour party: that ‘profit’ is distorting. That ‘profit’ discracts from the business of delivering service to customers, and that the Shareholder interest should be secondary to that of the customer. That ‘profit’ represents the difference between what you do, and what you should, pay.

Of course this is not the case. Look at the queues outside the cheapest petrol station in your local area: people will save a pound or two per tank and be prepared to wait for 10 minutes to do so. It pays the company to offer petrol at cost, and scalp whatever profit it can from the overpriced sweets and chocolate (and on valentine’s day, mother’s day and your wife’s birthday, flowers) you buy in the shop. There is no conspiracy against the public, there is brutal competition for business, and in the petrol business, that means cutting costs and delivering your petrol cheaper than Q8, Texaco, Esso, or the supermarket.

But the BBC didn’t want to hear that. So they ‘ran out of time’ for my slot. Oh well.

Markets, Media Bias and Leftish Mythologising.

Douglas Carswell and Dan Hannan have both complained of unthinking media bias in recent days, usually when BBC researchers are clearly looking for, as Mr Carswell puts it, “mr Angry Right-Winger”. They are unable to accept that a libertarian may be happy with the coalition BECAUSE of the influence of the liberal democrats. That ‘right-wing’ does not nessesarily mean lack of concern for the poor, or cheerleading for big business. Indeed it is the smug assumptions about ‘the right’ which go unchallenged by the BBC, even as the Left propose redistributionist policies which act as a boot on the face of the poor, which drives right-wing hostility to aunty Beeb.

The biggest cheer at the 2009 Tory conference was Cameron talking about “taking the poor out of income tax”. This was reported as though Tory activists hadn’t been demanding this for years. Indeed this was taken as evidence of how much the Tory party had “changed”. Whereas if you’d made this call at any point in the last 30 years, the reaction would have been the same.

The Tories may not be a party of the poor, but as Thatcher’s record of the greatest transfer of wealth and power from state to low-income individuals through council house sales, and Iain Duncan-Smith’s well thought out and consistent policies on Tax n’ Benefits show, we do try to be a party FOR the poor. Labour’s record in office is one of stagnating social mobility BECAUSE of their emphasis on redistribution and lack of concern for the incentives they build into the system. Their egalitarian education policies removed a ladder for bright kids from poor backgrounds, either Grammar schools or assisted places, because of spite and dogma rather than a view to what works. Thier opposition to the Tory Free Schools is based on ludicrous and dogmatic ideas of a one-size-fits all policy dictated to the classroom all the way from westminster. They cannot see that in order to raise standards, the tight grip of (whatever the department for education is called this week’s proxies: The) Local Education Authorities, needs to relax and parents need to be the ones setting teacher’s priorities.

On a more prosaic level, the debates I’ve had with North Briton 45, both in blog form and on Twitter demonstrate that most lefties, like the BBC assume as set of opinions and policies supported by people they deem as “right-wing”. This is a “slavish” devotion to something they call “the market” and a savage lack of concern for the poor. No matter how much you try to educate or inform them on the principles of incentives in the market, they still believe that only the state can provide “fair” services. No matter how often you point to the highly selective education systems of Germany, or the Largely privatised systems of New Zealand or Sweden, they still seem to believe that policies espoused by the right are motivated by malice. The best healthcare systems are mixed finance, and never state-run. They ignore the fact that state finance around the world, is best directed by the consumer through a market. The left are unmoved by statistics that today’s “egalitarian” NHS and education system has resulted in one of the most divided societies in the developed world, as House-prices in school catchement areas and heart-disease survival rates divide rich from poor far more effectively than a properly functioning market in education and health services, as exists in those divided, class-ridden hell-holes, New Zealand and Sweden.

This is not just prevalent when talking about politics. I have done 7 or 8 media interviews over the last few days, mainly about the results of the 2 British-listed oil multinationals, Royal Dutch Shell, and BP and mainly on the BBC. The focus is ALWAYS on director’s pay, and who’s to blame for a disaster. Never was there any amazement that BP was able to mobilise the world’s second largest navy to clean up the spill, and it would have been bigger and more effective had Obama the guts to suspend the Jones act. Surprise is always expressed when I point out that St. Barack of O’Bama therfore bears some blame for Oil reaching the Louisiana coast, and state agencies have admitted they got in the way of BP’s cleanup effort. Shell and BP gets a grilling for forecourt prices even though they make a loss that far downstream. Every 6 months, Centrica gets a grilling for having the termerity to make a profit, “at the expense of you and me”, even if retail Gas margins fall.

You see it’s another leftist myth: linked to the idea that right-wingers are selfish and evil, that profit (and indeed directors pay) represents the difference between what you do and what you should pay for a service. It is not seen as the result of delivering a service more efficiently against competing providers, nor is it seen as a reward for the work done in moving, for example, gas from a place of low value: bulk storage, to a place of high value: your boiler. The leftist myth is that profit is a result of “exploitation” by people. Trade, in this view is only of benefit to the vendor, and the profit motive distorts incentives, requiring state intervention to ensure “fairness”. This is the fallacy of mercantilism, and it was demonstrated to be idiocy by Adam Smith 234 years ago. But the left, especially in Britain sticks to the old dogmatic, aristocratic distain for “trade”.

It’s a coherent, but diseased set of opinions which sees exploitation in every free exchange. Tesco “exploits” its customers with cheap booze loss-leaders, and farmers with low prices, and despoils high streets, when it does so by offering food cheaply and conveniently to consumers, who eschew the Butcher and Baker and flock to the supermarket clutching thier hemp bags to carry their conciences. Centrica exploits people in “fuel poverty”, Vodafone “exploits” people with cross border tarriffs. It’s nonsense. Businesses have to make money, and if something’s regulated, like retail banking, then money is made where it’s not. Thus because no-one pays fees for banking services, fines are levied on those struggling. Wherever government steps in (natural monopolies like utilites aside) and regulates too closely, you get warped incentives and someone (probably not the wealthy) suffers.

On any measure of economic freedom (not the same as tax-rates), the freer you are the richer.

Trade, the free market, whatever you want to call it, is the best, most responsive and fairest way to deliver any service. Sure if you want the poor to participate, give vouchers, give state subsidies, or even better make everyone free do do what they will with a citizen’s basic income, but deliver the services through a market, and leave it well alone. Glory in the simple observation that a million people acting in their own interests will create a system fairer and less intrusive than that created by bureaucrats who only serve their own ends. Celebrate the fact that silk stockings, cars, Healthcare and TVs are within reach of everyone in society: in a planned economy only the planners have access to such luxuries.

It is not state action that created the internet for example but millions of users who took something conceived for academics, soldiers and spies and made it the most powerful force in economics and politics. Had bureaucrats been running that, it wouldn’t even be rolled out to every university. Where Labour and the British left have failed, is in their support for the bureaucratic and producer interest; at the expense of the market, which puts consumers in the driving seat. The British left has taken a dogmatic position that the man in whitehall knows best, and that profit is the great distorting evil. Argue for an activist state if you like, who funds services is open to debate. But if the left wants to be relevant, it needs to accept that Markets are better than Bureaucrats at delivering everything from Silk stockings to Healthcare. There are no exceptions to this rule. If you could tell the BBC this, that too would help.

So in short, I am open to argument that the state should FUND services. I am not open to argument that the state should have much of a role in delivery. Because states are incompetent, and bureaucrats are self-serving and needlessly obstructive.

So. NorthBriton45, and trots everywhere from Bob Piper, to Terry Kelly, if you want to tell me why free exchange in a market of competing services won’t work for education and health as they do in ABSOLUTELY EVERYTHING ELSE (and I will rule offside any use of the word ‘fair’ it means all things to all people). You will need to explain why our current system isn’t as disadvantageous to the poor as the statistics suggest; and why Gove’s school plans or any future breakup of the NHS into a system of competing mixed financed, but privately run providers, won’t work. And you’ll have therefore to explain why the Health and education systems of Canada, Sweden, New Zealand, France, and Germany are awful compared to ours.

Good luck.