Capitalism in action

I have had a certain amount of fun in these posts lamenting the somewhat depressing level of logic when applied to the analysis of events, and so I see no reason to stop now. Another focus of mine has been related to governance, largely because I use various forms of governance as a background in my futuristic ebooks. Like thought experiments, if I set up a somewhat novel form of governance, the story requires me to find a way that makes it fail to do what it was set up to do. Unfortunately, I found that only too depressingly easy to do. The basic principle is that as soon as you set up something that in principle should benefit everyone, a few jump in to ensure they capture the benefits, at the expense of the ordinary people.

A classic example comes from New Zealand petroleum products. New Zealand is a small country that produces a significant amount of crude oil, but not enough, and it was decided at one stage to build a refinery to handle imported and local crude. The oil majors took shares in the refinery, and by all using it, it guaranteed the refinery would be fully utilised, which in turn meant it would run efficiently. In fact a modest fraction of refined products are also imported.

You may see where this is going. What we have by essentially all the oil majors who are significant in New Zealand owning the refinery, and almost all of the distribution outlets, is a cartel, but it is legal. The price of crude oil has, as you may all know, dropped to about $30/ bbl, where a bit over a year ago, it was well over $100 / bbl. So, the New Zealand motorist should be enjoying lower petrol prices, right? Well, we are, but only to a point, and not a very deep point.

The refinery has recently announced a 1400% increase in profit, essentially based on lower input prices, not matched by reduction in product price. The Chief Executive Officer of the refinery stated publicly the refinery was in a “manufacturing nirvana”. Yes, it would be. So, what about competition? Well, there is a small company that imports directly from Singapore, and it offers decidedly cheaper petrol. So, why do people not just buy theirs? Well, the simple answer is they only operate in a few cities, and the majors lower their prices to match but only in those cities. Everywhere else, the price has stayed nicely up.

Where my grizzle with logic comes to play is when the CEO was forced to give a public statement on this. Of course the company was not taking advantage of the consumer, he said. It’s the motorists driving the fuel prices up. Apparently we want higher prices. He claimed it is the consumer deciding they want to drive more. And did you know, sales of SUVs in the US were soaring” (Exactly what that has to do with the price of refining fuel in New Zealand eludes me.) His argument, as quoted in my local newspaper was, “We would only be rorting them (the consumers) if demand was slumping and we saw at the pump that people couldn’t afford it and we were still trying to hold the price up.”

That summarizes that form of capitalism quite well: if the consumer is prepared to pay, stick it to them, while if competition forces us, we drop the price, but only where the competition is. Yes, it is more efficient than some other economic systems, but for whom?

So I think capitalism is bad? Actually, no. I think unnecessary greed is bad. Marxism simply does not work, but that does not mean there is no need to restrain those who have access to semi-monopoly positions. Stamping down unnecessary greed is one role for national governance.

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