Publication of the government planning document “Operation Yellowhammer” gives a foretaste of the chaos that is likely to ensue in the hours, days, weeks, and months following a No Deal Brexit. The government have fumed at the leaking of the document, and have spun the idea that it was an old document that has become outdated, as a result of the measures that Johnson has implemented since taking over. In fact, it appears that the leaked document is one that was presented to the new government, after Johnson became Prime Minister, and according to businesses and others who will have to deal with the chaos, nothing that has happened, in the last two or three weeks, will really make any significant difference to the scenarios depicted in the document.
Whenever there is such chaos, and shortages of vital, or even non-vital, commodities, the chaos and shortages are also made worse by the fact that anyone who can, begins to buy up and hoard anything that might be so affected, particularly those things that might particularly affect them. If you require regular medicine of a particular sort, for example, it is not surprising that people order in prescriptions in advance of any potential supply problems to ensure they do not personally run out of that medication. During the petrol shortages that arose at the start of the Blair government, people began storing petrol in whatever containers they had available in their garages, and even homes. In the 1970's, when there were strikes by bakery workers, I remember that, whenever bread did appear on shelves, people sought to buy up as much as they could, so that it quickly disappeared from shelves, and supplies of flour and yeast also got snapped up, as people attempted to bake their own bread.
Although, such panic buying inevitably increases the shortages, raises the level of panic, and creates additional chaos, it is a rational action to take. Take something like gas. Britain has very low levels of storage capacity for gas, compared with many other countries. A few years ago, when I wrote about that, it was around two weeks supply. The reason is simple. Firstly, Britain has an extensive gas pipeline network that supplies mains gas to the vast majority of houses in Britain. Only a small percentage, such as in the village where I used to live, until recently, do not have mains supplies, and so have to store their own gas in tanks, with it being refilled periodically. In Spain, by contrast, many villas do not have mains gas. Because its a large country, creating the infrastructure for a national gas grid would be very expensive, so most villas have storage for either gas or oil to provide energy, and many also have solar panels to heat water, or provide electricity.
In Britain, the availability, historically, of large coal supplies, from which town gas was produced, and of North Sea gas, meant that gas could continually be fed through the gas pipelines to every home. The large green gas storage containers that used to be a feature of every town, were mostly required in the days of town gas, but were carried over when North Sea gas replaced it. They have been added to by the provision of some large underground gas storage facilities, mostly sited near to the coast, as Britain now also imports large amounts of gas from overseas, as North Sea gas begins to run out. Creating storage is expensive, but holding gas in the storage is also expensive, when that gas could instead have been heading into people's homes, and being sold. That is why, large firms also, have attempted to reduce their own forms of storage in the holding of stocks, and instead have moved to systems of Just In Time production and stock control.
For businesses, not only is holding large amounts of stock expensive because you need to build the necessary storage, but it is unprofitable, because the capital you have tied up in that storage facility, as well as the stock you have stored in it, could have been used productively to have been producing more output that you could sell to customers, and have been making a profit on. But, for producers, and sellers it has another downside. If you hold a large amount of stock of some particular type, if fashions or requirements change, then you need different inputs to the ones you have stored, to produce the new lines. The old stock becomes immediately depreciated, causing a capital loss. The less stock you hold, the more capital you have available to quickly buy in the inputs required for your new line of production. That has been one of the major benefits of Just In Time production and stock control, and of flexible specialisation, which enables firms to quickly move production from one line to another, in response to consumer demands. It has resulted in large savings and efficiencies, but given the nature of the international division of labour, it requires open borders such as those created by the EU, to allow components to be moved around seamlessly. That is a major cost and efficiency benefit that Britain will lose when it leaves the EU, putting it at a considerable competitive disadvantage to the EU.
Or take, something like petrol. Storage of petrol takes a number of forms. Firstly, as with people who have to store gas or heating oil, because they are not on mains gas, every individual car has to have its own storage of petrol, i.e. the petrol tank. The more fuel the vehicle consumes per mile, the larger the petrol tank required, so as to avoid having to continually refuel. The old III Series Jaguar, had two 10 gallon tanks, for example, and lorries have to have even larger fuel tanks. Total up all of the millions of vehicles in the country, and that amounts to a sizeable storage of petrol, in total, and yet, on average, each one would use up its storage in a matter of days. Fortunately, the many service stations across the country, provide a second line of storage, but as seen whenever there is a tanker driver's strike, that storage too disappears within days. Further storage is provided by the oil refiners, but at each stage, the amount stored is kept to a minimum, because the cost of storage facilities, and the petrol stored in them, is dead money that could have been used productively.
If you have £50 of petrol in your tank, that is £50 that you don't have in your bank account earning interest. With current interest rates, for each individual, that doesn't make much difference, but consider a large haulage fleet, where at any one time, thousands of pounds of fuel is stored, in trucks, or in fuel tanks. Those thousands of pounds, could instead have been profitably employed buying additional trucks, and employing additional drivers. Now, if fuel supplies become uncertain, due to Brexit, the greater concern of the haulage company becomes the ability to be able to even have the fuel to keep its trucks on the road at all, so that, unprofitable use of its capital or not, it makes sense to increase its own hoarding of fuel, so as to keep its trucks moving. Spending £200,000 for additional storage facilities so as to quadruple the firm's capacity to store petrol, together with say another £1 million in the cost of petrol stored, appears a complete waste of money that could have been used better buying additional trucks etc., but if it means your trucks stay in the road, whilst your competitors run out of fuel, it will be seen as a wise investment.
The reason that we don't have large stores of things, be they the medicines each of us require, the gas we use to heat our homes, the petrol we put in our vehicles, the food we consume, and so on, is that our economy is based upon continual production and reproduction of all the things that we consume either as consumption goods, or as the means of production used in the production of those consumption goods. That was true even in the 19th century. Thomas Hodgskin noted that all of this production was, in fact, the consequence not of commodities being stored up, but of “contemporaneous labour”. In other words, as he said, the bread that the workers ate each day, was not bread that had been stored up ready for their consumption a part of their wages, but was itself the product of other labourers that very morning, who baked the bread, which was then put on the shelves, i.e. of contemporaneous labour.
In the 19th century, when supplies were uncertain, and when it took six months or more to ship raw materials, and finished goods, from one part of the world to another, it was not only rational, but necessary to hold large stocks, so that you did not run out, but as soon as steam powered ships were introduced that changed. As Marx points out, wholesalers of cotton in Liverpool could hold smaller stocks, because ships traversed the Atlantic more quickly, and more frequently, bringing cotton supplies to Britain on a more regular basis, and that also meant that the Lancashire textile producers, could hold less stock of cotton too, because, when their demand for cotton rose, they could now quickly transmit that demand by telegram to wholesalers in Liverpool, who then quickly shipped the cotton to them from their own stocks, via train. Today, the massive increase in the speed and capacity of shipping and other forms of transport, along with the Internet, has caused a similar effect but on steroids.
In short, the rate of turnover of capital has become faster and faster. In the mid 19th century, Engels calculated it to be around 8.5 times per year. Today, the average rate of turnover is likely to be around 50 or more times a year, as a result of the continual rise in productivity in both production and circulation. In some spheres, the rate of turnover is as high as 300 times a year, or more.
So, the economy, like all economies throughout the world, has been built around the premise that storage and stock holding is an unnecessary cost that must be kept to a minimum. In fact, increasingly all of our consumption behaviour has moved in that direction too, as we have moved away from the production and consumption of commodities, to the production and consumption of services. In all developed economies service industry now accounts for 80% of all new value and surplus value creation. In developing economies like China, Singapore, Brazil, South Africa it accounts for a majority of new value and surplus value creation too, and that proportion is growing by the day. But, that model of service production relies on continual production, and rapid turnover of capital, to ensure that the services we wish to consume are available.
We could all stop buying food, cookers, and so on and simply eat out at restaurants – which in fact does constitute a growing proportion of household expenditure – and indeed, in terms of use of resources, that is a far more efficient model. But, look what happened a few months ago, when KFC changed its chicken suppliers, and it ran out of chicken. Very quickly it led to loud protests. Now imagine if the only way you could eat was by depending on such restaurants, and they all suffered such problems. It would mean not just loud protests by widespread civil unrest. But, if a No Deal Brexit leads to chaos, which even delays food getting to shops, every day, let alone means that not enough food gets into the country in the first place, it will not just be restaurants that run out of chicken and other requirements, it will be everyone.
Under those conditions, having hoarded food, and other vital requirements in advance will seem to have been a very wise move indeed. In the 1930's, my grandfather kept rabbits in the garden, and chickens on his allotment, to supplement their food supplies, but today, few people have allotments, many have no garden, and those that do do not have the capacity to keep livestock, or even grow vegetables on a meaningful basis. Progress has meant we no longer need to do those things, because we have much more efficient, much cheaper means of meeting our needs, but those means require all of the trappings of the modern international division of labour, and frictionless trade that the EU has provided. Britain is proposing to cut itself off from those advantages and developments at a stroke, which must have disastrous consequences.
Under those conditions, hoarding is a rational response, because it only restores the situation that used to exist prior to us being able to rely on being able to simply meet our requirements at a moment's notice. If you have available freezer's, and fridge space, it makes sense to use it to the full, to begin to stock up on frozen food and so on. After all the government itself has become the world's largest buyer of fridges so as to hoard drugs that it considers might run out after Brexit, for the NHS. Of course, that is itself dependent on the power supply being maintained, because a fridge won't work without electricity, so that all of those fridges might have been wasted money by the government, and the medicines they store in them will be likewise ruined. When I was young, power cuts were a frequent occurrence, even without disruption due to strikes. The nationwide power cut the other week, shows how susceptible everything is to such events, and after Brexit, the country will become even more susceptible to such events.
If you don't have enough freezer capacity, then buying tinned goods is an obvious alternative. Buying in flour, dried milk, long life milk and so on is also a good idea, as they can be stored and used to bake bread, etc. for when bread disappears from supermarket shelves. Obviously, anyone dependent on medicines should start stocking up now, because I certainly would not rely on the government, particularly this government, taking the required measures to ensure those drugs are available when I need them. Similarly, as Brexit occurs as Winter approaches, and its effects will drag on through the Winter, buying in thermal clothing, extra duvets and so on, is a useful precautionary measure. Also I would buy portable gas heaters, and store up calor gas, because if electric supplies become erratic, it could be the only way to guarantee heating and cooking facilities, because even gas and oil central heating systems rely on electricity to run pumps etc.
Such hoarding of vital goods is rational not just because it might be necessary for survival over the Winter, but even if supplies do not run out, they are going to be in short supply, making availability problematic, but also, in such conditions, scarcity will drive up the prices of such goods. Its always in such conditions of scarcity that prices are driven up, and when that scarcity results in rationing, it simply promotes the creation of black markets, and even higher prices, racketeering and criminality, as can be seen with the example of Prohibition in the US in the 1920's, the so called war on drugs, and the widespread black markets that developed in Eastern Europe, as a result of shortages and rationing.
Even if eventually, the chaos of Brexit were to settle down in some manner, it doesn't change the disruption and threats to individuals it poses during the intervening period, and so anyone who can is rationally going to protect themselves against it.
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