Tory Voodoo Economics

On the Andrew Marr programme, on BBC today, the Tory Shadow Chancellor came up with a lunatic idea. He argued that the Tories would introduce a fuel price escalator that would cut tax when oil prices rose, and raise tax when oil prices fell!!! Now, no doubt, there will be some people who will say what's wrong with that, we're paying a load of money for oil, so it would be good to reduce the costs a bit. But, though that might seem an attractive proposition, a little basic economics shows why it isn't.

The whole function of prices, in a capitalist economy - and we are after all living in a capitalist economy, and the Tories are the last people to want to change that - is that they act as a method of rationing. You can, of course, ration things by other means, such as was introduced during wartime, or such as was introduced in the Stalinist States, and, indeed, the way its organised in the NHS. But, generally speaking, that kind of bureaucratic and administrative rationing is very inefficient. For one thing, as long as things are produced by capitalist producers, those producers will seek to make profits. If the State tries to hold down prices and ration out goods, producers will respond by not investing - why would they risk their capital - or else a growing Black Market will develop, with real prices higher than the prices the State tries to impose. The State will then try to respond by bureaucratic and administrative means, which, in itself, means employing large numbers of bureaucrats and police etc.

The market rations things, ultimately, in a much more efficient manner. If the supply of things fails to increase enough to meet demand, the suppliers will take advantage to raise prices. As prices rise then consumers will respond by trying to reduce their demand for those goods. They will either buy less, or else they will look to buy alternatives, either buying margarine in place of butter, or else will buy smaller cars instead of gas guzzlers, or might even decide to use Public Transport or decide to walk or ride a bike. It's not a fair way of rationing, because the rich, or just people who have enough income or wealth to continue paying a higher price, will just pay the higher price, and put up with a reduction in their standard of living. Others can't afford to pay the higher prices, or else have to pay the higher prices, and have to give up other things instead. It's very unfair, but, the fact is, that capitalism, as a system, is itself unfair. The rich can pay to go to a private hospital, a private school, can eat better food, live in bigger houses, enjoy more holidays, wear better clothes, and so on. Simply complaining about the unfairness of capitalism, just in relation to some things, rather than capitalism as a whole, makes no sense.

The answer is not to complain, moralistically, about the unfairness of capitalism; the answer is to replace capitalism with socialism. Even then, as Karl Marx set out, in The Critique of the Gotha Programme, simply overturning capitalism will not immediately solve that problem. Overcoming that inequality requires not just ending capitalism, but also needs the raising of the production of output to such a level that everyone in society is able to have an adequate share of the basic requirements to live a comfortable, and equitable life. Until such time, even if everyone was paid the same rate of pay, there would be inequality, because everyone has different abilities. If someone is strong they might, for example, be able to produce as much as someone else, and yet only have to work half as hard as someone who is not so strong. If they are able to work twice as long, or to produce twice as much in the same amount of time, then, even with equal wages, for a given amount of work, they will earn twice as much.

So, the fact is that, for a long time, however much socialists want to create a fairer society, workers will have to continue to utilise the market as a means of encouraging workers to produce those things that society needs and wants - why otherwise would someone do a nasty job, spend a long time studying, or do a job that entails taking on a great deal of responsibility etc., and that means that also the market will continue to operate in rationing out what is produced for a large range of commodities. Increasingly, workers who own their own means of production, through their ownership and control over cooperative enterprises, housing and communities etc. will come together to integrate what they produce with what other cooperatives produce, and with what workers as a whole want and need. Once they have established control of their own state, they will be able to make decisions over important needs, such as health, or decisions over transport and other things which, for example, affect the environment, and determine what is produced outside the control of the market, diverting whatever resources are needed to ensure that production is sufficient to meet everyone's needs. That is the solution to the unfairness, but it requires first that workers take back ownership of the means of production, and from there begin to transform society. For now, that is a long way off, and we have to deal with the reality of capitalism.

Within that context, the proposals of the Tories amount to nothing more than voodoo economics. Let's look at the consequence of what they propose. Let's take the best scenario. Suppose the price of oil is actually falling. The reason could be because some new source of oil has been found so that it can be pumped out of the ground at a much lower cost than previously. It can be supplied at a sufficient level to meet the demand, and so competition forces prices down as a result of the reduced cost. The government then raises taxes so the lower cost is offset by this higher tax. The higher profit that would have gone to the oil company then goes to the capitalist state. The benefit that would have gone to consumers does not materialise because the lower cost is offset by the tax. But, furthermore because the tax goes to the state the oil company does not make the higher rate of profit that would otherwise lead to other capitalists moving into oil production and thereby bringing about the increase in supply that would make more oil available, and reduce the price. Now, in fact, that could be a good thing, because from the perspective of trying to improve the environment by discouraging people from using oil such a policy might have such an effect. But, then don't tell us that such a policy is designed to benefit hard pressed consumers!

The likelihood is, however, that the world has seen the last of cheap oil. Its running out and the cost of getting oil out of the ground is likely to just go up and up. But, what then is the result that will flow from cutting taxes as this price rises? It means that consumers will continue to demand oil rather than the higher price acting to ration it out, and thereby reduce demand. On the one hand the continued rise in the cost of production will reduce supply at any given price, while the reduction in tax will keep demand higher than it otherwise would have been. The consequence can only be that supply and demand are kept out of equilibrium, and prices are forced higher, with an increasing amount of profit going to the capitalists as they take advantage of lower tax to transfer what would have gone in tax into the pocket of the capitalists! But, how far are the Tories prepared to go with such a policy? In China, and elsewhere, the State does subsidise oil. But, as the price of oil has risen so the amount that has to be provided for such subsidies continues to rise. China has, in the last few weeks, been forced to slash the subsidy by 24%, and other economies are following suit. If, as seems likely, the price of oil continues to go up, then the Tories policy means that they will have to keep cutting taxes by more and more. What happens when the price of oil doubles from its current level? What happens when the Tories programme means that such increases mean that instead of the state receiving tax from the production and sale of oil, its price has risen so much that it actually ends up having to subsidise it??? Then, it will have to raise its taxes from elsewhere, and knowing the Tories they are more likely to take it from rises in VAT, the reintroduction of VAT on gas and electricity etc., in short to place the burden on those least able to pay.

The answer to the high price of oil is not cuts in taxes. Ultimately, the answer is to replace capitalism with socialism, but workers need a solution here and now not some time in the future. That answer means providing a more efficient means of travel than using cars. Moreover, even "Public" transport has proven itself inefficient, and expensive. Such transport is either produced by private capitalists, like Virgin, or, by what is often just as bad, by the capitalists' state in one form or another. Much better would be for workers to set up a cooperative public transport system, where workers themselves can provide an efficient and responsive transport system that is democratically controlled, and is geared to meet workers needs, rather than to make profits for private owners, or to provide a cushy well-paid job for bureaucrats. As long as transport remains in the hands of capitalists, whether as individuals or in the form of their state, transport will never operate in the interests of workers.

But, imagine that workers set up a cooperative transport system. Not only could it be set up to run in the interest of workers, but it could be flexible and efficient. It could be developed to meet the need, that has always been put forward in the past, to institute an integrated transport system, which will never happen as long as it requires the capitalists or their state to bring it about. But, more than that. An efficient, cooperative, transport system also requires efficient, cost effective means of transport too. A cooperative transport company could look to encourage cooperative vehicle producers to provide the necessary buses, and other vehicles. And that process could rapidly spread across Europe taking advantage of the division of labour to encourage the development of cooperative industries wherever the most efficient production can be achieved, and thereby integrating a whole range of cooperative industries and services across Europe. No longer would production be held back and restricted by capitalist producers who want to maximise profits, instead the latest techniques could be introduced quickly. Workers have the resources to do this. In Britain, and throughout Europe workers have billions of pounds in their pension funds. It is necessary to demand they have democratic control over them, so that they can utilise these funds to establish efficient, large scale, cooperative enterprises. There is no reason to wait for decades or hope for some revolutionary transformation to come about at the behest of some elitist organisation. Workers can begin to bring about that change now.