A country paralysed by political crisis; people unable to access the food they need; healthcare services foundering; a ruling class completely divorced from the privations of its people; government institutions that are unfit for purpose; growing public anger that threatens to spill over into violent protest and even full-blown revolution. Brexit Britain and out-of-gas Venezuela would seem to have much in common just now (although, for now at least, the UK does not have the threat of the USA bringing freedom and democracy to our remaining oil fields).
Of course there are many differences between the situation in the UK and Venezuela. The UK (or at least its affluent regions) is still dining out on the wealth generated during the era when it ruled a global empire. Venezuela, in contrast, was and is on the receiving end of European and US imperialism, and thus never had the chance to build the developed economy that the UK is currently clinging on to. The relative simplicity of Venezuela’s situation, however, allows us to identify an alarming trend which is also present within the UK; and which will very likely see the UK collapse in a similar way in the not too distant future.
Strip away the nonsense about political ideology spouted by ill-informed media pundits (politics was only ever the froth on the top of the beer) and Venezuela clearly fits the profile of an underdeveloped state suffering from “the curse of oil.” Emma Ashford in her review of Leif Wenar’s Blood Oil: Tyrants, Violence, and the Rules that Run the World sets this out succinctly:
“Oil wealth pours into these states, enriching elites, enabling corruption and repression, and damaging the prospects for economic development and good governance. In buying their oil, we are enabling the addiction.”
World oil prices were just beginning to accelerate upward when socialist Hugo Chavez came to power in 1999. Short supply increased demand for Venezuela’s ultra-heavy oil in the years leading up to the 2008 financial crash. The result was that the Chavez government had sufficient income from the export of oil to provide a package of social reforms that would otherwise have been unaffordable. The gamble – one supported by the majority of geologists and economists at the time – was that as the world’s older (cheap and easy) oil deposits were exhausted and supplies ran short, prices would continue to shoot upward, and demand for Venezuela’s massive reserves of lower-quality oil would increase.
It didn’t work out that way. Big rises in the oil price following the global peak in conventional oil production in 2005 resulted in central banks hiking interest rates in one of the most successful attempts at curbing inflation the world has ever seen. Households and businesses that had been getting by suddenly found themselves in deficit. Businesses began to close and mortgage holders began to send the keys and deeds to their homes back to the banks. To their horror, the banks discovered that they were heavily invested in each other’s’ dodgy securities; rendering several of them bankrupt and requiring that central banks bail them out. Having done this, the central banks turned to their governments for the tax income required to repay the bailouts. The same struggling households and businesses were then subjected to state austerity policies on top of the private sector recession brought about by the financial crisis. The end result – on a global scale – was that demand for oil collapsed along with economic activity. Far from ever rising prices, states like Venezuela had to grapple with falling demand and failing prices.
A different government might have responded differently; but it is doubtful that any government could have altered the fundamentals underlying Venezuela’s collapse. Its only saving grace for the time being is that its heavy oil can be blended with the USA’s ultra-light fracked oil to create a substance that approximates to the conventional crude oil the world’s refineries were set up to process (on the downside, this has given America’s chicken hawks an incentive to bring “freedom and democracy” to Venezuela’s oil reserves).
“It could never happen here” is among the most foolish statements humans have ever made. Sitting on a typing chair in front of a computer in a comfortable house located just a few miles from a well-stocked supermarket, with electricity, telecommunications and clean water piped in, it would be easy to regard what is happening in Venezuela as completely alien. But Britain has – for almost diametrically opposite political reasons – charted a similar course to that so obviously laid bare on the other side of the Atlantic. Ian Jack writing in the Guardian six years ago pointed to a UK politics dissimilar only in its beneficiaries to the politics pursued by Chavez:
“I had the idea… when I was walking through a London square around the time of the City’s deregulatory ‘Big Bang’ and Peregrine Worsthorne coining the phrase ‘bourgeois triumphalism’ to describe the brash behaviour of the newly enriched: the boys who wore red braces and swore long and loud in restaurants. Champagne was becoming an unexceptional drink. The miners had been beaten. A little terraced house in an ordinary bit of London would buy 7.5 similar houses in Bradford. In the seven years since 1979, jobs in manufacturing had declined from about seven million to around five million, and more than nine in every 10 of all jobs lost were located north of the diagonal between the Bristol channel and the Wash. And yet it was also true that more people owned more things – tumble dryers and deep freezers – than ever before, and that the average household’s disposable income in 1985 was more than 10% higher than it had been in the last days of Jim Callaghan’s government.”
Where Chavez had sought to wrestle some of his country’s wealth away from the ruling elite in an attempt to provide such basic services as public health, education and transport; the governments of Margaret Thatcher and Tony Blair openly removed wealth from the poor in order to hand it (with various degrees of corruption) to Britain’s already bloated elite. Bourgeois triumphalism indeed! But the source of the wealth transfer was the same. As Jack explained:
“Social peace had been bought by tax cuts and welfare benefits, and these had been largely enabled by government income from North Sea oil that by the mid-1980s was delivering the Treasury 10% of its revenues.”
Guy Lodge at the New Statesman points out that:
“Thatcher missed a trick in not diverting some of the proceeds of oil revenue into an oil fund, like Norway and others did. Instead she used the lot to support current spending, including covering the costs of large-scale industrial restructuring and funding expensive tax cuts to woo middle England.
“And what a lot it was… In the years between 1980-81 and 1989-90, the Thatcher governments received a staggering windfall of £166bn [adjusted to 2011 pounds].”
While Thatcher was fighting the miners’ union in 1984/85 – the UK’s biggest ever industrial dispute – tax revenues on North Sea oil exports reached their peak of £30.9bn; more or less guaranteeing a government victory. The financial “Big Bang” the following year made clear which social class was going to be the beneficiary of the Thatcher revolution. The City of London banks were to become the hub of a new economy to which the majority of the British people were only invited in the role of lambs to the slaughter (or, as the bankers preferred, sub-prime borrowers waiting to be fleeced).
Even more than Thatcher’s Tories, Blair’s New Labour were infatuated by the apparent success of the banking class. Mandelson famously professing to be: “intensely relaxed about people getting filthy rich so long as they paid their taxes.” Not, of course, that the Blair government was about to jack up taxes on the rich; that ignominy would fall to Blair’s successor in the wake of the financial collapse that was bound to be the end result of Britain’s oil-based debt bubble.
Like so many commentators, Ian Jack’s concern was with the UK running out of oil:
“My estimate that by about 2010 Britain would ‘probably cease to be a significant producer of oil’ was hopelessly wrong; present forecasts suggest reserves could last for another 30 to 40 years, depending on rates of exploitation and the success of new fields.”
But running out is not really the issue. Any country that builds its prosperity on a resource – particularly one that is in universal demand – is in trouble long before the resource runs out. Indeed, if running out was the only problem, Venezuela – which now has the largest resource on the planet – would be among the richest countries on earth. The moment at which a country reaches – and passes – maximum production comes with problems of its own. In 1999 Britain’s North Sea oil and gas fields hit their production peak; resulting in fast declining revenues. As Jack notes:
“On the other hand, revenues to the UK government are much less than they were – adjusted for inflation, receipts averaged more than £18bn a year in the 80s, compared to the £6.7bn estimated for the current year…”
Falling revenues are not, however, the end of the problem. Obviously enough in Venezuela’s case, oil-based economies are obliged to engage in the “bright green deception” – the use of electrification of the domestic economy and the deployment of low carbon energy generation in order to maximise the oil available for export (you didn’t really believe the Saudis were building solar farms in the desert because of newfound concern for the environment did you?). Venezuela put its low-carbon eggs into the single basket of the giant Guri hydroelectric dam – a decision that was perhaps not the wisest in a region where El Nino events cause widespread drought. The UK’s electricity mix is more diverse; although the failure of several new nuclear projects, the closure of its remaining coal power stations and investors’ reluctance to build new gas power plants has left Britain facing electricity shortages (that cannot be made up with wind turbines alone) in the 2020s.
The crunch for the Thatcher/Blair neoliberal project came in 2004/5 when the UK ceased being an oil and gas exporting country. As Euan Mearns wrote in The Conversation back in 2013:
“For decades the UK has been accustomed to filling its coffers with the bounty from North Sea oil and gas, and the jobs and tax receipts it has brought. At one time exports helped balance the books and provided energy security on our doorstep. But production peaked at the equivalent of 4.72 million barrels per day in 1999 and the subsequent decline has in recent years accelerated, as the figures from BP’s statistical review of world energy 2013 show.
“These days the UK is a net importer of oil and gas, and coal, accounting for £22 billion of the £59.8 billion deficit in the 2012 balance of payments.”
Worse was to follow. In 2015, with oil prices falling and North Sea output 60 percent lower than in 1999, Chancellor George Osborne was obliged to hand out tax breaks and subsidies just to keep Britain’s shrinking oil and gas industry in business. A few tiny new – and expensive – fields have been discovered, but there is nothing like enough oil (barring a complete collapse of the domestic economy) to allow the UK ever to become a net exporter again. Indeed, there are concerns in some quarters that the income from the remaining reserves will not be enough to fund the decommissioning of the infrastructure. And that leaves the British government – irrespective of which political party is in office – with a massive headache.
The City of London remains the central hub of a grossly unbalanced and increasingly unequal UK economy. But its strength was made possible by the flow of oil revenues that bolstered the Pound on international exchanges. Without the income from oil, the imposition of austerity and the sale of what remains of Britain’s public assets are the only things keeping the game going. But those policies come at an enormous social and political cost.
For a political class that is now dangerously adrift from reality, the British people’s vote to leave the European Union in 2016 was treated as little more than the ill-educated being gulled by the mendacious. Now – we are told – that the people can see the error of their ways, Brexit must be halted either by withdrawing Article 50 or by holding a second referendum. Dig beneath this for a moment, however, and we discover that the Brexit result was decided by Britain’s equivalent of the US Rust Belt – the cradle of the world’s industrial revolution; left to wither on the vine by the architects of Thatcher and Blair’s neoliberal revolution. While the City of London is (for the moment) the richest place in northern Europe, the British economy beyond the City walls contains nine of Northern Europe’s ten most impoverished places:
In many cases the destitution experienced by people in these areas has become life-threatening. The homeless are dying in the streets while the disabled die out of sight of a political class that long ago ceased caring. Too many people now rely on foodbanks to worry too much about the economic impacts of Brexit. As a Universal Credit victim in a recent video by the Guardian’s John Harris bluntly puts it: “things can’t get any worse for me.”
Brexit – along with the inability of the political class to resolve it – is a symptom of a growing crisis not dissimilar to Venezuela’s. In short it is this:
- Social peace was bought with the revenue from oil exports
- In order to maintain the peace, the currency must be artificially high to allow people to consume the imports they desire and to fund public services and social security
- Without revenue from oil exports governments must cut spending and/or sell off state assets or risk a fall in the value of the currency.
The only question to be resolved is which classes are going to take the hit. In Nicolás Maduro’s Venezuela, the government is still attempting (and failing) to maintain some of the social benefits put in place under Chavez. In the UK the government has been far more mercenary; ensuring that the cuts have fallen disproportionately on the shoulders of those least able to bear them; even as the rich got richer. It sometimes takes a satirist to say what the London-based media dare not contemplate. In this instance, Tom Walker who plays the character Jonathan Pie gets to the heart of the matter when he describes a UK government that has torn up the social contract.
In the expanding economy of the late Thatcher and Blair years, government could get away with allowing the rich to become mega-rich because the flow of oil revenues from the North Sea gave them the means to bribe the electorate with better public services, tax cuts and inflation-busting pay increases. Not only can those bribes not be made today; they will never again be available to the UK government because the oil was squandered.
For many commentators, the key failure of successive British governments is that they refused to establish a sovereign wealth fund similar to Norway’s. Had they done so, the current government would have as much as £500bn available to repair some of the economic damage that tipped the balance in favour of Brexit. Whether, however, such funds could be liquidated without losing a large part of their current value is questionable. In any case, it wasn’t done and so Britain’s only remaining – and impossible – option is the Labour opposition’s version of a green new deal: borrow/print billions of pounds to deploy non-renewable renewable energy-harvesting technologies in the hope that these will provide (they won’t) the energy upon which to build a new round of economic growth.
The trouble is that borrowing/printing on the scale envisaged must result either in the value of the currency falling – effectively defeating the object, since the solar panels and wind turbines at the heart of the project have to be imported – or in interests rates increasing beyond the point where the enfeebled post-2008 economy would be plunged into a deep recession.
The decision by the Thatcher government to bulldoze Britain’s manufacturing capacity in the early 1980s, along with Blair’s failure to rebuild it, has its consequence in the ex-industrial regions’ decision (in England and Wales) – by a wide margin – to vote to leave the European Union. The tendency among the few commentators who can be bothered to venture outside the London bubble is to regard these regions as “the left behind.” This has resulted in the usual affluent class hand wringing and platitudes of the “something must be done” kind that have been uttered throughout the long years of Britain’s industrial decline. As Keith Hann at Voice of the North observes:
“So whenever somebody proclaims that something must be done, let us pause to consider carefully whether anything actually can be done, and whether what can be done is likely to represent an improvement on doing nothing…”
Without the North Sea oil export revenues that provided the UK with a 40 year reprieve from an economic collapse that began in the 1970s, not only can nothing be done, but the supposedly left behind regions will very likely prove to be pathfinders plotting out the economic future that the still affluent remain-voting areas will soon experience for themselves. At some point along that journey, the whole rotten financialised edifice of the City of London – no longer backed by anything that gives it real value – will come crashing down too. Blame it on capitalism or neoliberalism – in the same way as Venezuela’s plight is dismissed as a failure of socialism – if you will; but the true underlying cause is that the oil revenues have gone away.
Could Britain be like Venezuela? Certainly the contingency planning for a “no-deal Brexit” reminds us just how dependent we have become upon a steady and uninterrupted supply of imported goods. Despite the bizarre stockpiling of ice cream, the UK is still just nine meals from starvation. As we saw during the laughably modest snow event this time last year, our apparently abundant supermarket shelves can be stripped bare in a matter of hours. Nor, as our aging electricity generating capacity reaches the end of its lifespan, can the UK take an uninterrupted flow of electricity for granted. We are now dangerously dependent upon electricity imported from the EU via a series of underwater cables. Worse still, unlike Venezuela, Britain’s more complex and energy-intensive critical infrastructure is far more vulnerable to unpredictable intermittent electricity supply. And nothing in the current government planning offers a serious attempt to mitigate this.
A wise government – understanding that Britain’s oil economy is over – would act now to ensure that the hardships that the coming collapse will inevitably bring will be shared fairly; because unwise governments throughout history have discovered to their cost that the alternative ends with guillotines and firing squads. But then again, wise government is itself the product of economic affluence. And as prosperity disappears and the political class’s room for manoeuvre diminishes, a government of fools may be all that is left to us.
As you made it to the end…
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