Transforming the economy – energy

A different, sustainable economy is possible, for Scotland and globally, if we break away from the neo-liberal race to the bottom.

Today, I was speaking at the Friends of the Earth Scotland’s conference, ‘Transforming Scotland ‘s Economy’. My contribution was on the impact of privatisation with a focus on the energy industry and local government.

Instead of lots of numbers and charts that I am inordinately fond of, I started with a topical story that for me illustrates all that is wrong with our economic system.

Soma, is a small mining town in western Turkey, host to one of the greatest industrial crimes in mining history when an explosion trapped 800 miners. The death toll has already claimed 280 lives and may yet exceed 300. I use the word crime deliberately, this was no ordinary accident.

Turkey and people across the world mourn the lost lives, but we should also feel anger towards a system that squeezes out profits at the expense of workers’ safety.

The Soma mine was privatised in 2005. There are 4.5 worker deaths per million tons mined in Turkey’s publicly-owned plants, compared to the private sector average of 11.5 deaths. Workers in a privately owned mine in Turkey are ten times more likely to die on the job than their Chinese counterparts. We should also remember 1000 Chinese miners die each year, albeit down from 6000.

This is not simply misfortune. Unregulated, hasty privatisations have forced people into more informal work coupled with the use of sub-contracting. The new owners proudly declared that production costs had declined from around $120 per ton under public ownership to just under $24 per ton. This “miraculous market success” was the determined evasion of the security measures and safety standards. Production tunnels were extended from 350 meters to more than 2.5 kilometres. The government cut most formal safety inspections.

This story is replicated across the world. 1200 mostly Indian and Nepalese building workers have died building World Cup stadiums in Qatar. A death toll that is likely to grow to 4,000 before a ball is kicked. Forced to work in conditions that are little more than slavery.

If all this sounds like a story of medieval practice in a countries far away, it isn’t. In the UK, the HSE is being slashed, inspections cut and safety regulations are described as Red Tape. In Scotland we had the Stockline explosion in Glasgow where the lessons have still not been learnt. Environmental health officers rarely do safety inspections in Scotland any more after their numbers have been cut. Food safety is being deregulated with proper meat inspection of some animals abandoned at the behest of meat producers focused on profits.

All of this is so the richest in society can get even richer.

The richest 1% of the population are becoming increasingly removed from everybody else. Share of post-tax income captured by the richest 1% leapt from 8.2% to 9.8% in 2013/14. Total post-tax income increased by about £37bn last year. Of this, £16bn went to the richest 1%, with just £11 billion shared across the poorest 50%. They also dodge taxes with £120bn lost to the exchequer. Just think what those resources could do for our battered public services.

The share of wages as a percentage of national income has progressively fallen from around 58% in the early 1980’s to 54% in 2011,while profit’s share has increased from 24% to 28% over the same period.

This is not just about cash. As this week’s new IPPR report ‘Fair Shares’ highlights, workers experience of work is disempowering, lacking dignity and autonomy. One-third of all employees are fearful at work in some way, most feel that they lack a say over decisions and a majority feel disengaged at work. Growing insecurity at work, the rise of zero-hours contracts and the growth in jobs paid less than the Living Wage. 1 in 5 Scots are paid below the Scottish living wage.

These statistics reflect the prevailing interests in our economy. The primacy of shareholder interest and the spread of financialisation have structurally unbalanced returns towards a narrow elite. The capture of returns has become detached from the creation of value. Just one of the points brilliantly set out in Thomas Piketty’s ground breaking work, ‘Capital in the Twenty First Century’.

This is a form of capitalism in Scotland and the rest of the UK that values short termism over long term investment. Illustrated by huge drop in R&D spending in the UK that mirrors the fall in GDP. While successful economies are growing their R&D spend.

The ConDems are proposing a future of government cuts without end, of growing inequality, and of a Britain with only 10% of our output in manufacturing, finding it increasingly difficult to pay our way in the world.

All the evidence shows that countries with lower levels of inequality, such as the Scandinavian countries and Germany, have performed better than those countries, such as the UK and the US, where high and widening levels of inequality have accompanied relatively poor economic performance over recent decades.

So what about some solutions? I illustrated some of these by looking at the energy sector.

The UK had a public service energy industry, privatised in the Thatcher era. We now have a so-called energy market, with huge challenges including cost increases for consumers, financing infrastructure investment and a shortage of workforce skills. The lights in our homes are largely powered by generating capacity that was built when energy was a nationalised industry – when we planned our energy not left it largely to the vagaries of the market. Most of Scotland’s existing energy capacity will close within 15 years and the UK needs something like £120bn of new investment.

In the ‘Red Book on Scotland 2014’ I argue for a planned, balanced energy policy. A key element of that is not Morrisonian nationalisation, but rather a more diverse generation ownership model. In Scotland, renewables are dominated by big business, whereas in Denmark small scale operators play a much bigger role. Some key features we might adopt include:

A strong political vision over the long term, with commensurate policy and planning provisions.
Favourable feed-in tariffs to create the incentive for new generation using different business models.
A state owned grid that will usually connect up communities. The cost is repaid through a public service obligation payment in energy bills.
A clear focus on energy efficiency with measures to tackle hard-to-heat homes.
Strengthening the ability and willingness of local government to get involved – a utilities culture largely lost in the UK.

I completed my story with the last of these – local government.

Public services as we know them evolved due to the failure of the voluntary and private sectors to meet the needs of the people. While the well off could buy many things for themselves, infrastructure like roads, water supply and sewerage needed coordinated action and investment. Even the wealthy recognised that it was in their own self-interest to ensure that everyone had clean water to drink and wash in and that waste was dealt with, because everyone suffers when others aren’t covered. The vermin attracted to a street where only half the bins are emptied would be a problem for everyone.

Public sector growth in the 20th century was about providing fair and equal access to services. This also highlights that the defining difference between public and private provision of services is democracy. Not just voting, but deliberative involvement including not just communities of place but also communities of interest.

Scotland has local government but not many genuinely local councils. We have fewer councils and councillors than any other in Europe – an average of 1 councillor per 4270 people while France has 1 per 125. Stronger local government needs a wider range of people as councillors, power over finances and integration with other services that are being increasingly centralised.

Greater public ownership has widespread public support. Polls show that two thirds believe public services should be provided in-house, not run like a business and with stronger user voice. We should also remember that inequality impacts on people’s inability to influence the direction of the public sector, so any attempts to support local democracy will have to ensure that all voices, not just the already advantaged, are able to influence decision making.

How might we finance local energy generation? One approach is to use some of the £24bn in Scottish local authority pensions funds, provided by workers and the taxpayer. Half that money is currently invested abroad. However, governance is weak with decisions driven by advice from the very same fund managers who got us into the current financial crisis. They also cream off profits for themselves in transaction charges. I have written a paper that shows how this could be done for housing and I believe that approach could also work for energy generation and efficiency.

Our economic system is wrong in so many ways. Not just here in Scotland, but globally. The solutions are complex, but we shouldn’t be overwhelmed by the scale of the problem or the solutions. We can take action as individuals and more importantly collectively. From disinvestment campaigns to public service reform – there is a better way. One than prioritises jobs, wages, public services, fair taxes in an environmentally sustainable way.

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