Forget it, Owen Jones: only free-market policies can solve the cost-of-living crisis (Part 1)

Over the past few months, in a series of articles, Independent columnist Owen Jones has outlined a socialist response to the cost-of-living crisis – ‘bread-and-butter socialism’, as he calls it. In a sense, it is a welcome development that socialists are discovering the cost-of-living crisis. For too long, the British left has been monomaniacal about bloating the welfare state further and further, so in that respect, Jones is well ahead of his own camp. He realises that in a country in which ordinary people could actually pay their rent, energy bills etc. without having to sell a kidney on the black market, far fewer people would need welfare payments in the first place. Contrary to those in the poverty industry, Jones realises that pouring more and more water into a bucket that is full of holes cannot be the answer to everything. Not bad.

But as this post will show (in two parts), even though Jones correctly identifies the problem, the solutions he offers are non-starters. In the ambit of energy, Jones’ reasoning is simple: energy companies have been privatised, and prices are going up, ergo, privatisation must have caused the price increases. No prizes for guessing what policy he recommends (hint: starts with an ‘n’, and ends in ‘-ationalisation’).

As I’ve explained before, for Jones, the history of the world only begins in 1979, so one cannot expect any awareness of the failures of nationalised energy provision from him. But it is worth remembering a few things about that experiment. Prior to privatisation, the British energy sector was not just characterised by the general inefficiencies and mismanagement that are typical of state ownership. It also got roped into the political power games of its time. Before Margaret Thatcher (thankfully) put them in their place, the far-left union barons of the coal industry represented a powerful force in British politics. In order to keep the union bosses quiet, successive governments pressurised the Central Electricity Generating Board to favour domestically produced coal over more cost-effective energy sources.

That policy represented a forced redistribution from energy consumers to a well-organised producer group, an outcome which should not surprise anyone. Politics is little else than the exploitation of heterogeneous, politically unorganisable groups by groups that are economically more homogenous and more easily organisable. In Jones’ world, though, this is not supposed to happen: coal miners are working-class people and therefore good. But many energy consumers are also working-class people and therefore also good, so by definition, there can be no conflict of economic interests between them. Conflict always has to run along class boundaries, between bosses and workers. It cannot run within groups.

In the real world, meanwhile, the privatisation of energy provision was initially a genuine pro-poor policy. It ended the stranglehold of a privileged producer group over consumers. The newly privatised producers cared only about profits, not politics, which is why they rebalanced their energy portfolios and substituted natural gas for domestic coal. Between 1996 and 2003, the brief ‘golden age’ of energy liberalisation, electricity prices fell by almost 20% in real terms.

But at some point, politicians realised that they did not have to own the production facilities in order to boss producers around. Renewable energy is now the new coal, the politically favoured energy source. Renewable energy subsidies represent a far greater share of household energy bills (see here, Chapter 6) than industry profits (4-5%). They are aggravated by the cost of another green policy, the forced, premature shutting down of coal-fired power stations. And then there’s the cost of holding back shale gas extraction for fear of the green mob, and the cost of political privileges granted to nuclear power stations. Energy has, once again, become a veritable hotbed of rent-seeking and favouritism, and those who deplore the consequences – rising energy prices – should call for getting the state’s tentacles out of the sector altogether. It is as simple as that: if nobody has the power to grant favours, there will be no favour-seeking. But as long as that power exists, producers will arrange their affairs around it.

Does Jones have anything to say about privileges for politically favoured industries? Yes. He wants more of them: ‘Why not learn from Germany with an interventionist industrial policy, creating hundreds of thousands of renewable-energy jobs.’

Oh, boy. In renewables-obsessed Germany, energy prices are almost twice as high as in the UK, so Jones is effectively saying: energy prices in Britain are too high, therefore, we have to copy the policies of a country where they are far higher still.

But that’s bread-and-butter socialism for you. It will first run out of butter, then out of bread, and then it will blame what little is left of market forces for the shortages.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

3 thoughts on “Forget it, Owen Jones: only free-market policies can solve the cost-of-living crisis (Part 1)”

  1. Posted 24/01/2014 at 12:43 | Permalink

    No mention of inflation in all of this?

  2. Posted 24/01/2014 at 13:08 | Permalink

    Very telling points Kristian – especially about Germany. Mr Jones is an extremely clever and articulate young man, still in his 20s. He studied history at Oxford. His book on chavs said some interesting things that maybe needed saying. But he has never had a serious job and has no experience or expertise at all on which to base his opinions about energy policy. The Independent piece on energy was just polemic. I see from their website, though, that 824 ‘strongly agree’ with it, with only 31 disagreeing!

  3. Posted 24/01/2014 at 15:47 | Permalink

    The best way to muzzle the green mob is to denationalise shale gas and oil. Let the royalties for extracted hydrocarbons go directly to property owners. The Treasury will still get its tax bite – only by a different route.

    Let property owners (not local government) decide whether to permit fracking in a locality. The noisy, unrepresentative minorities against fracking won’t stand a chance against a silent majority voting with their wallets. The royalties relating to properties whose owners take a principled stand against fracking can be allocated (irrevocably, with negative consequences for the owners’ property values) to the local authorities (so that the whole community can share in the benefit).

Comments are closed.