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Not just a CO2 shortage – the economy is broken

Posted by Graeme in Business & Investment,Economics,Politics at 9:27 am on Thursday, 12 July 2018

Shortages happen. A shortage of a gas that is vital to the manufacture of everything from beer to pain killers may look like just another unfortunate occurrence, but it is really a product of the way a “neo-liberal” economy works: globalisation and centralisation.Big businesses centralise production in a small number of plants, this means that unfortunate timing, a small number of closures happening at the same time has a large effect on the supply. If we had a large number of smaller plants, one of my suggestions in How to Fix Capitalism,  then it would be statistically highly unlikely that the same proportion of production would coincidentally shut down at the same time.

Globalisation is to blame for two reasons. Firstly it encourages centralisation. Secondly it encourages imports which makes it harder for anyone to anticipate or plan for the problem and cuts domestic production even further. It makes central planning (which does not have a great track record) even harder.

The reason we have this system is supposedly the pursuit of efficiency, and it is possible that prices of ammonia (of which CO2 is a by-product) and CO2 are lower as a result. I have some doubts (there are other motives for scaling up, and there is plenty of evidence that agency conflicts and the advantage to managers is the real motive), but we can leave that aside for now.

A clearer problem is that the costs of the shortage are widely spread out across the economy, rather than falling on those who operate the plants. In other words, the risk and reality of shortages are externalities.

Combine externalities with the market fundamentalist ideology of the “invisible hand” and the, again ideological, taking of homo economicus not just a useful simplification in economic models but as a guide to reasonable, even moral, behaviour, and we have all the ingredients for the problem. It is not the manufacturers duty to even warn of the problem, let alone try to ameliorate it. If people are expected to have a selfish motivation, what duty is expected to customers, let alone wider society?

So, in summary, if we had lots of small firms, instead of a few big ones, we would avoid this sort of problem. If we had a bit less free trade, it would help as well. Finally, if we had different ideologies and attitudes, we could plan for it. However, these are not three separate issues: they are all products of the market fundamentalist/neo-liberal/pro-business (call it what you will) ideology.

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