Economics

May this be the last Oil War

/ Dr Craig Dalzell / Leave a comment

“I’m going to say [to George W Bush], ‘And you tell me, what the noble cause is that my son died for.’ And if he even starts to say ‘freedom and democracy,’ I’m going to say, ‘bullshit.’ You tell me the truth. You tell me that my son died for oil. You tell me that my son died to make your friends rich. You tell me my son died so you can spread the cancer of Pax America, imperialism, in the Middle East” – Cindy Sheehan, (2005, Voices of a People’s History of the US)

This blog post previously appeared in Common Weal’s weekly magazine. Sign up to our Daily Briefing and Weekly Magazine newsletters here.

If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

sunset

For decades now – almost since the first barrel of oil was pulled out of the ground – the oil companies have been paying people to tell environmentalists that the world couldn’t possibly shut down the fossil fuel sector, especially not overnight! Furthermore, rather than spending those decades slowly ramping down fossil fuel dependency in favour of alternatives, we were told that we should just “Drill, Baby, Drill” and pump more black stuff into our consumer goods and into our atmosphere for the great profit of the oil barons. There will be parties in the upcoming Scottish elections who will be openly campaigning on this stance.

Well, thanks to those efforts and the efforts of some powerful men with apparent grudges against the future, we now live in a world where the fossil fuel sector can be shut off overnight.

The closure of the Hormuz Strait as a result of the US and Israel’s illegal war against Iran is causing shocks throughout an energy sector still not made resilient against the shocks of Russia’s illegal war against Ukraine.

The closure of the Strait has spiked oil prices by around a factor of two, actual shortages are being felt in some countries that are reliant on the oil directly from the region (as opposed to places like the UK and US where oil supplies are less affected other than by the price shock and we merely need to compete on price in what is a globalised commodity market) which has caused countries to experience blackouts or to partially shut down their economies to reduce energy demand.

The world has been here before with a conflict between the US and Iran which led to the closure of the Strait of Hormuz! The world should not allow this to happen again.

One of the biggest differences between the present conflict and the previous oil shock of the 1970s is that we are far better placed to have avoided it should we have chosen to. Renewables technologies have come a long way since US President Jimmy Carter put some solar thermal panels on the roof of the White House as a symbolic show of his support for weaning America off of oil (the panels were removed by President Reagan in a symbolic move of his reversal of said policies though they eventually lived on till the end of their useful lifespans in other locations or have since been placed in museums).

The cost of wind energy has dropped by 90% since the 1970s and solar energy costs have dropped by closer to 99.9% since then. It’s now possible to buy rooftop-grade solar panel for less than £50 each and with the UK about to make it easier than ever to literally plug them into their home sockets we’re about to see a hard takeoff in adoption here in the same way that it is already rolling out in Germany and many other countries. Solar electricity is now the cheapest form of energy generation humans have ever created, and we probably haven’t hit the price floor yet.

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A regulated economy is one that works for all of us

/ Dr Craig Dalzell / Leave a comment

“They’ll re-regulate within ten years. There’ll be a string of crashes, and they’ll do it. the free marketeers will scream, but the fact is, free markets don’t provide safety. Only regulation does that. You want safe food, you better have inspectors. You want safe water, you better have an EPA. You want a safe stock market, you better have an SEC. And you want safe airlines, you better regulate them too. Believe me, they will.” – Michael Crichton

This blog post previously appeared in Common Weal’s weekly magazine. Sign up to our Daily Briefing and Weekly Magazine newsletters here.

If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

It was a sombre weekend for me last week. The fire at Union Street in Glasgow hit me hard. I know it was by far not the worst disaster happening even at that moment – as Trump and Netanyahu’s illegal war spread burning oil rains over Tehran in a manner that would surely be an example of a prosecutable offence under the proposed Scottish Ecocide Bill on top of war crimes and crimes against humanity.

But still, that corner of Union Street was Common Weal’s office for several years and I realised that I’m the only member of the team remaining who worked in it on a daily basis (Robin had always habitually worked from home even before the Covid pandemic pushed the rest of us to do it too) and so the pang of personal connection was particularly strong.

As one of our Daily Briefings said this week, there are a lot of questions to be asked about the cause of the fire and many that may never be answered. If early reports are accurate though, it may well be that the vape shop where it started was not properly following business regulations and, simultaneously, the regulations around shops that sell highly addictive and highly flammable substances like vapes is nowhere near strong enough given the risks that the devices pose.

(By the way, if you are subscribed to Common Weal’s weekly Magazine but not yet subscribed to our Daily Briefing newsletter then you’re missing out. Every weekday we’ll send you our take on a news story that caught our eye that morning – one that you may not have noticed or may not have clocked the particular significance of from a Common Weal focus. Subscribe to the Daily Briefings for free here. And if you like it, please consider sending us a wee donation to help us keep it going.)

There are going to be questions in the coming weeks, months and possibly as part of the upcoming Scottish Parliamentary elections about how to better regulate these shops specifically. Even the Reform Party is calling for a review of regulations and they have usually been a party ideologically wedded to the idea that “cutting red tape” is the way to boost the economy.

And this is perhaps the core of the issue. The call for more or fewer regulations in anything from businesses, through banking, to regulations over cross-border food imports and exports, or even the regulation of government itself, appears to run like a swinging pendulum. When things are going fine, people think that the regulations are holding them back and call for the red tape to be cut. We become complacent and perhaps forget that the problems the regulations prevent ever even existed – almost like living in a world where people call for cuts to the fire service because it’s been years since they saw a building burn down.

When things crash (as they so, so often do) people wonder why the regulations didn’t save them and want more to prevent the causes of the previous crash happening again. This works until a different crash blindsides everyone who wasn’t listening to the folk who were warning about it, or folk start to feel safe and start talking about cutting red tape again.

There’s another aspect of regulation that sits underneath that broad cycle of tying up and cutting the red tape and that’s our willingness to enforce the regulations that do exist. This, too, could run from vape shops not being checked to make sure they are registered out to ensuring that the food being imported into the country are actually being checked to make sure they are meeting agreed standards rather than just being ‘waved through’ because there just aren’t the resources there to properly secure the border.

A regulation that isn’t enforced is even worse than one that doesn’t exist because it’s often not never enforced but instead merely enforced selectively. Which means enforced for us, but not those with the money or the power or the “too big to fail” scale to avoid having to play by trivialities like “the rules”.

“We can no longer allow the failure to regulate to simply be priced into the cost of doing business.”

Common Weal has been working on a broad group of policies around the topic of governance – mostly focus at Government itself but this all applies everywhere too. One of the foundational principles is that “no-one should govern themselves”. This means that government isn’t allowed to vote against transparency measures under the excuse that the mandatory rules merely replicate voluntary rules that they’re not following.

It means that the boards that are supposed to govern our regulatory bodies can’t be solely conscripted from the ranks of the bodies they are supposed to be regulating. It means that conflicts of interest must be rooted out and it means that lobbyists who advocate for changes to or immunity from regulations must do so in plain site of our democracy – we now argue that the Lobbying Register is insufficient and that ALL lobbying meetings with the Government (even ours) should be recorded and posted for public scrutiny.

And when it comes to regulation of the private sector, we can no longer allow the failure to regulate to simply be priced into the cost of doing business. There needs to be adequate deterrent and punishment for those responsible for failure that doesn’t just take the form of a fine that is smaller than the cleanup costs. That way lies the principle of CATNAP – Cheapest Available Technology, Narrowly Avoiding Prosecution – where companies don’t even just barely meet what regulations there are but happily sell us illegal products from unsafe vapes to unsafe houses knowing that no-one is about to stop them from doing so.

It’s said that “every rule is written in blood” and this is very much true when it comes to regulatory practices and especially with health and safety. Those who break out the scissors must be able to articulate why those rules came about and what they were designed to protect us from before being allowed to start cutting or even to just stop enforcing what we have – especially in the name of profit.

Otherwise, when the pendulum swings again, the blood that the next set of rules will be written in might well be our own.

 

Scotland is already losing out on green energy. Here’s what we can do

/ Dr Craig Dalzell / Leave a comment

“It’s called socialism. Or, for those who freak out at that word, like Americans or international capitalist success stories reacting allergically to that word, call it public utility districts. They are almost the same thing. Public ownership of the necessities, so that these are provided as human rights and as public goods, in a not-for-profit way. The necessities are food, water, shelter, clothing, electricity, health care, and education. All these are human rights, all are public goods, all are never to be subjected to appropriation, exploitation, and profit. It’s as simple as that.” – Kim Stanley Robinson

This blog post previously appeared in The National, for which I received a commission.
If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

photo of truss towers

Scotland has an extremely poor track record of benefiting from our own energy resources. The decline of the First Age of energy wealth – based on coal – can still be seen in the scars of deprivation it left behind especially in the Central Belt towns and villages around where I live and where mining was most intensive.

In the Second Age, our oil wealth was – as Gavin McCrone warned – downplayed and then squandered under successive UK Governments while leaving Scotland vulnerable to oil shocks and we’re now seeing how we’re being held liable for the costs (economic and social) of drawing down the sector as it absolutely must be drawn down as the world wrestles with the challenges of the climate emergency caused largely by that oil even as the rich owners of the assets reap the profits and continue to lobby to delay or prevent change.

The problem is that unlike almost every other country that found itself with large reserves of energy wealth, we collectively decided that Scotland shouldn’t own any of it.

Rather than building up a robust public-owned oil sector, the UK Government flogged off the rights to exploit the resources to the lowest bidder, even offering generous subsidies rather than taxing their profits. The downstream infrastructure was privatised too not just sucked vast amounts of wealth into the pockets of billionaires like Jim Radcliffe but also granting them vast political power and the ability to make hypocritical statements about immigration while living the high life in their own offshore tax haven.

The Third Age of Scottish energy is our Green Transition – built initially around our vast onshore and offshore wind resources but now increasingly diversifying into other areas like solar and battery storage.

We see here that Scotland is in the process of losing out once again when it comes to energy resources that, if anything, vastly outstrip anything the oil sector could have ever promised because, unlike oil, the sun and the wind will continue to deliver that energy long after the last barrel of oil is extracted from the ground.

It promised to finally bring some ongoing benefit to communities that would be hosting the generators but even that failed. Neither Scotland nor the UK showed interest in developing public ownership of the assets and the “community benefit” funds were set at the lowest possible level of £5,000 per MW of capacity for wind (not uprated for inflation) and zero for other forms of renewables. It is estimated that a community owned wind turbine generates around 34 times as much revenue for the local community as does a privately owned one that pays its £5,000/MW community benefit. There is some evidence emerging that even this paltry sum is not being met in many cases with The Ferret reporting a shortfall of about £50 million across Scotland’s community benefit funds.

Offshore is arguable worse with the debacle of the ScotWind auction selling off the options to develop one of the largest offshore wind projects in the world in an auction that, for reasons still not adequately explained, set a maximum price cap on bids and potentially cost Scotland anywhere between billions and tens of billions of pounds in upfront capital.

Most crucially of all, we don’t even make the renewable generators and batteries that we don’t own. Decades of climate-denying politicians telling people that we shouldn’t bother trying to avert climate change because China wasn’t doing anything conveniently ignored that China was, in fact, rapidly building up its industrial base and was starting to sell the generators to the world.

So Scotland now imports the materials to build wind turbines that are owned by multinational companies and foreign public energy companies that export their profits elsewhere and pay communities sometimes less than the bare minimum. We don’t even get cheaper energy for it because the UK’s grid and pricing structures are still based on assumptions laid down in the Coal Age.

So what of the Fourth Age of Scottish energy? The thing about the current generation of privately owned energy assets is that they will eventually need to be replaced, and fairly soon – perhaps in 25 years time. This gives us an opportunity to start planning now.

Scotland needs to start building up its domestic wind and solar manufacturing base. We need to use our excellent universities to develop the materials to ensure that those generators are built to Circular Economy standards (current generation fibreglass wind turbine blades are disposable and are sent to landfill after use). We also need to start aggressively bringing assets into Scottish public ownership. Every time a renewable energy lease is up for renewal, it should be transferred to a Scottish public energy company (nationally or locally owned). This can also happen when a site is up for “repowering” – when old, smaller turbines are replaced with larger, more powerful ones but which exceed the previous lease’s maximum capacity terms.

New renewable sites should have their leases signed aggressively in favour of public ownership too. Rather than 60 or 99 year leases that cover the lifespan of multiple generations of turbines, they should be set to as low as 10 years. Enough time for the private developer to recoup their investment but also enough time for the Scottish public sector to take over the site and also make a profit without merely being saddled with the liability of decommissioning as we’re doing with the oil sector.

If any of this is not possible within devolution (some of it certainly is) and the UK is not willing to allow it, then while we are doing what we can, the case must be made for independence so that we can finish the job.

All of this will take time to set up which is why we need to start preparing the ground now. I don’t want to be here in 25 years talking being asked to comment on why we’re importing the next generation of technology and exporting the profits again. If we want to sit under a tree in 2050, maybe the best time to plant it is today.

The new National Housing Agency must serve people, not profit

/ Dr Craig Dalzell / Leave a comment

“The Master said, “If your conduct is determined solely by considerations of profit you will arouse great resentment.” – Confucius

This blog post previously appeared in The National as part of Common Weal’s In Common newsletter.
If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

Common Weal has been campaigning for the best part of a decade on overhauling and improving the Scottish housing sector. While we haven’t been named in the announcements, the SNP’s new proposal to launch a National Housing Agency should they return to Government after the elections is a policy taken straight out of our strategic roadmap which called for what we termed a Scottish National Housing Company.

It is far too easy for Governments to talk big about housing but to do little. Even in previous election campaigns, it has been considered sufficient for a political party to just look at the raw number of houses being built in Scotland and to either say that they would build X thousand homes (where X is a larger number than their rival party is promising to build, or that the previous government actually built) without paying much attention to other vital factors such as where the houses are built, what standards they are built to, how much they’ll cost, what kind of tenure will be offered to residents or who will profit from the construction of the buildings (particularly if policies come with significant amounts of public money attached). This number goes up and down with the political winds but rarely is it based on anything other than that kind of political party promise. It’s almost certainly never based on whether or not that number of houses is ‘enough’ to satisfy immediate and long term demand.

In these respects, the Government has been taking some welcome steps particularly with policies around rent controls and energy efficiency standards (though we still have significant disagreements around how far those proposals should go – the current rent control plan all-but guarantees above inflation rent increases and the energy efficiency standards appear to be being significantly watered down from the “PassivHaus equivalent for all new homes” originally promised).

But a more strategic approach to housing is still needed beyond piecemeal interventions and broad frameworks so in this respect, that the Government has adopted our Housing Agency is something to be celebrated.

The devil is in the details however and Common Weal is now gearing up to develop our proposals and to try to ensure that the Government adopts them in full.

In our original plan, the Housing Agency would be a direct construction body – public owned and employing the people who actually build our houses.

Direct construction bypasses the biggest limitation of every housing policy that has come before. Private housing developers aren’t in the business of building ‘enough’ houses. A basic rule of economics is that price is determined by supply vs demand. Scarcity results in higher prices. This means that developers can charge higher prices by not building homes as quickly as they could or by “banking” land they own to prevent another developer from buying it and building (see my article in In Common last November which breaks down why this and other factors increases the price of an average UK home by around £67,000).

We also can’t keep building houses purely to chase the highest possible price when it comes to tenures. We’ve heard a lot about “affordable homes” in recent years despite no real definition of what that actually means beyond developers being forced to sell a few homes in each block of houses a little bit cheaper than they otherwise would (even when “a little bit cheaper” is still very much unaffordable for many).

A strategic plan led by a National Housing Agency would not be concerned about quick profits and so could build houses with a longer term view. Housing for social rent especially should be built to a standard that minimises ongoing costs like heating and maintenance thus makes living in the houses cheaper for social tenants. (See my 2020 policy paper Good Houses for All for more details on how that would work).

This would benefit Local Authorities in the long term as once the construction costs of the houses are paid off in 25 or even 50 years time, the ongoing rents will still provide a safe and steady income for decades to come. By contrast, the cheap and flimsy houses being built today are being put up by developers who don’t particularly care if the house outlives its mortgage – if it doesn’t, they’ll happily sell you another one.

This is the important point about the role of a National Housing Agency. It cannot be a mechanism for laundering public money into private developers. It absolutely must be a force that outcompetes or plays a different game from the private developers. It must disrupt the market to the point that people would actively seek out a high quality, efficient and cheap to live in Agency house rather than a private developer “Diddy Box”, especially one being offered at exorbitant private rents because the only people able to actually buy them are private equity funded landlords.

Houses should not be an inflatable capital asset designed to enrich the already wealthy and to suck wealth out of the pockets of everyone else. Houses should, first and foremost, be a home. This is the measure of the ambition that the National Housing Agency should be aiming to achieve. Common Weal is very happy to see this policy enter the politician discussion space. We stand ready to help whichever Government comes out of the elections this year to build the Agency we need so that it can build the homes that all of us deserve.

What Scotland can learn from the world’s first UBI

/ Dr Craig Dalzell / Leave a comment

“In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” – Confucius

This blog post previously appeared in The National, for which I received a commission.
If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

(Image Source: Wikimedia)

I like to say that in politics everything seems impossible right up until the moment it becomes inevitable. What this means is that in hindsight, it’s easy to see how something happened even though the campaign had to fight through a mire of “it’ll never happen” almost all the way.

Few campaigns exemplify this maxim for me better than the campaign I’ve been a part of for more than a decade for Scotland to introduce a Universal Basic Income. What began as a campaign so outlandish and so seemingly utopian that we may as well have promised the Moon and the stars has reached the point where, in theory at least, there is currently a Parliamentary majority in favour of the principle of a UBI (The SNP, Greens and Lib Dems all support one in principle and Scottish Labour supports the weaker idea of a Minimum Income Guarantee though I do not believe they’d vote against a UBI if it came to it), even if the barriers to actually implementing one largely prevent it from happening quite yet (barriers largely within the power of the UK Government to remove…we’ll come back to that in a bit).

But still, elsewhere in the world, the impossible truly has become inevitable. This year, a news story happened that has been covered extensively outwith the West and Global North but which you almost certainly haven’t heard about. In November, the Marshall Islands became the world’s first UN Member Nation to announce the implementation of a full Universal Basic Income.

It’s still not “a lot”, even for the local economy, but it will be enough to make a meaningful difference. The UBI is set at 200 US dollars per quarter plus a system of additional rates for people who live in the more outlying islands in the state as well as for retirees, people with disabilities and others who qualify for a top up. It is expected that the system will have a gross cost around 8% of the state’s GDP for the foundational UBI. The payment can be made in the form of paper cheque, direct bank transfer or via cryptocurrency – the latter garnering some attention in crypto circles despite only a dozen or so people opting for this method of payment.

The UBI is largely being funded externally. The Marshall Islands are a sovereign state that is in a “free compact” with the USA – the UK equivalent would be something like an Overseas Territory like the Falkland Islands, albeit with more power over foreign affairs than the UK allows its former colonies – and the bulk of the money will draw from a trust fund set up by the US as part-compensation for the damage wrought by nuclear weapons testing.

We don’t (yet?) have a wealth fund like that but let’s consider what a UBI could look like if Scotland followed the example of the Marshall Islands.

At 8% of GDP, Scotland’s UBI would translate to around £3,200 per person per year or about £60 per week. This is around half of the maximum amount of Universal Credit so it probably strains the definition of “basic” at this level. And yet, we’ve seen in Scotland that even smaller payments, like the £27/week Scottish Child Payment, has already made a massive difference to those who receive it.

The gross cost of an 8% of GDP Scottish UBI would be £40 billion per year or about a third of the total Scottish public sector expenditure budget. But this is misleading on the face of it for the same reason that it would be misleading to judge the Marshall Islands’ UBI on its gross cost.

In Scotland’s case, the implementation of a UBI would require an overhaul of existing social securities. An independent Scotland would be free, of course, to design the system from the ground up but a devolved Scotland would have to renegotiate the Block Grant and devolved Fiscal Framework with the UK Government so that the UBI could part-replace Universal Credit or the state pension without being unfairly clawed back (the failure to agree this scuppered plans for a Scottish UBI pilot scheme a few years ago). Transferring, say, a third of the existing social protection budget into the UBI would reduce the gross cost by around £11 billion.

And then there’s the Scottish tax system. The principle of universality underlying a UBI states that it’s much easier to ensure that no-one who needs it doesn’t get it and that no-one who doesn’t qualify for it doesn’t cheat the system if everyone gets it unconditionally – from the poorest to the richest. Of course, those who “don’t need it” can simply have their total income tax increased to tax it back off them. A simple way of doing it would be to set a line – perhaps at the UK Minimum Income Standard level of around £31,000 per year for a single person with no children – and tax the UBI back off those who earn more. As this would cover around half of Scottish income tax payers – 1.5 million people – this would reduce the gross cost again by another £5 billion or so.

We could close the gap further by making the tax progressive and by targeting wealth as well as income via a land tax and reformed property taxation so that those who earn and own much more than most of us could “pay for” the UBI of several people.

As people spend their UBI, they will pay VAT and companies that receive extra custom due to people being able to afford to buy things will pay corporation taxes (both are currently reserved taxes and therefore raising complications around fiscal transfers under devolution). We could also look at using devolved taxation powers to target Scotland’s keystone exports of energy, whisky and salmon (sectors which are highly foreign-owned and therefore also export their profits from Scotland, contributing to a loss of more than £10 billion per year from Scotland).

Taking these into account reduces the total actual bill for a Scottish UBI from “impossible” to a scheme that starts to look just about possible even under devolution (so long as Westminster abstains from its effective veto over implementation). But there’s one final aspect of a UBI to consider. The cost of poverty within the current system.

If we consider the cost of healthcare resulting from poverty-related conditions, the loss of productivity from poverty (the chronic stress of poverty makes for less productive workers and blocks the ability to take risks such as entrepreneurship), the cost of delivering expensive services such as crisis care for homeless people rather than simply making affordable housing a human right, the additional costs of administering “means-tested” social securities which sometimes exceeds the cost of the benefits being withheld because the punitive nature of the system is part of the point.

This kind of poverty may well be more expensive than the overall net cost of a UBI sufficient to eliminate it. At this point, we see that a UBI isn’t an impossible utopian dream, but becomes a moral imperative that must happen if we are to continue to call ourselves a civilised nation.

The Marshall Islands have proven that the impossible can become inevitable. I look forward to the day that Scotland inevitably does the same.

How to profit from not-for-profit care

/ Dr Craig Dalzell / 2 Comments

“Just because brokerages disclose a convoluted web of profiteering doesn’t mean it’s appropriate. It just means they are hiding these questionable practices in plain sight with a mountain of compliance language that no one will ever read.” – Christopher Manske

This blog post previously appeared in Common Weal’s weekly magazine. Sign up for our newsletters here.

If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

I would like you to imagine the following scenario: You are a company owner or shareholder. Like every ‘good’ Capitalist, you want to leverage your assets to make as much money as you can. The issue is that you work in a sector where making a profit has been deemed by the Government to be unacceptable and they have banned you from making one. How do you extract as much as you can?

As a bit of background, this thought experiment stems from the conclusions of our latest policy paper, Why and how the Scottish Government must end private provision of children’s care, which has found that private companies, including ostensibly ‘not-for-profit’ companies, that deliver children’s care services are extracting an average of £28,000 per child per year from care services. This includes an average of £9,000 per child per year from foster care specifically where, in Scotland, it is explicitly illegal to make a profit..

These findings have come off the back of the Scottish Government making a pledge to eliminate profit from children’s care and they themselves have described our findings as “shocking”, though they are sticking by their current action plan to merely “limit” profit in such care. The problem as we see it though is that there are various mechanisms open to companies to allow them to extract money from the system in ways that wouldn’t be counted as ‘profit’.

This is because ‘profit’ has very narrow meaning in this context. It’s just what a company has left over after all of its expenses are subtracted from its income. In a for-profit company, this is often distributed to owners and shareholders as a dividend (see my recent article on the financialisation of housing and why that is costing you an average of £67,000 in extra mortgage payments for an example of this in action).

It would be perfectly possible for the Scottish Government to ban the sharing of such dividends for children’s care services and to legislate that only not-for-profit companies can bid for care contracts. However, this is not enough to prevent people from making money from children’s care. To that end, we’ve concluded in our paper that the only way to avoid profit extraction from children’s care is to bring the whole sector into public ownership.

If we don’t, then we’ll just end up with ‘profit’ being shifted into some of the following means of making money without making a profit.

1. Pay yourself as much as you need

The simplest and easiest way of extracting money now that your company has been banned from giving you a dividend, is to simply pay you more. Whatever the company’s surplus was last year, you can just pay to yourself as a salary. There will be tax implications for this – you’ll be paying income tax instead of Capital Gains tax so, especially in Scotland, the tax on your earnings will be substantially higher than if you were paying yourself a dividend, but that might still be worth it.

We found examples of children’s care companies in Scotland where the Director was being paid almost £350,000 per year – and we’ve found similar examples in other ‘not-for-profit’ care sectors like social work. This is more than twice the annual salary of the Scottish First Minister. Note that these high levels of pay often do not filter down to the front-line care staff who are, in fact, often paid less than their public sector counterparts as well as losing out on benefits and rights such as better conditions or union representation. While it is important to ensure that expenditure matches income to avoid ‘profit’, it’s clear that some expenditures are more worthy than others…

This is one area that might still be an issue if the sector is brought into public ownership – a prominent current example is the dispute over the pay rises granted to Scottish Water executives. However, this is still a better idea than the current system allows for. Partially because the Scottish Water scandal is a scandal precisely because it is public owned.

This means that such pay is democratically accountable and Ministers can be challenged for their oversight and the executive salaries are all public knowledge rather than being hidden or woven through opaque company accounts (in our report we couldn’t track down the executive pay of more than a couple of companies because some simply do not disclose it). Also though, Scottish Water has a near-monopoly on service provision in Scotland because it is public owned. In the care sector it’s not just the Director of one company whose salary is under question but multiple companies all working all across the care sector.

2. Lease yourself to yourself

If your care company is banned from making a profit then you can split that company into two. The ‘not-for-profit’ company that actually provides the care services might be banned from making a profit but the for-profit company that is also owned by you is the one who owns the building that the not-for-profit uses. This company charges a lease to the not-for-profit for the use of the building that just so happens to be high enough to eat their operating surplus.

‘Management Fees’ are another way of making these kinds of transfers from a subsidiary to a parent company and come with the added benefit of not being tied to a physical asset like a building and thus there’s no risk of someone noticing that you’re charging far higher rents than would be expected in the local market.

This is also a common tactic amongst multinational companies who want to shift money into tax havens or ‘tax friendly’ institutions. Coffee company Starbucks is well known for buying its coffee beans via a subsidiary company in Switzerland and charges its UK and other branches just enough for those beans to conveniently make sure that their UK outlets never make a ‘profit’ and thus pay little tax in the UK.

3. Give out a loan, and make them pay it back

One of the touted advantages of being owned by a larger company is that they can bring investment cash your way that wouldn’t otherwise be possible to get. Of course, investments always demand a return and the money your parent company loans to your subsidiary (remember, in this scheme you own both companies) should be paid back… with interest.

Even better, because this is an internal company loan rather than one via a regulated bank, you can charge whatever level of interest that you like and easily tailor the repayments to ensure that the not-for-profit company never makes a profit. If you ever wonder why profitable companies end up completely loaded with debt just a few years after being bought out by a global equity fund, this is very likely what has happened.

4. Receive a loan, and keep it.

It doesn’t need to be the parent company passing debt down, of course. This kind of financial transaction can happen the other way too. If the not-for-profit finds itself with a substantial surplus that it can’t get rid of before tax day, then it can loan that cash to the parent company or its Directors (e.g. you). The difference here is that you don’t charge above market rates for this upwards loan.

Maybe you don’t charge any interest at all. Maybe you don’t even expect the parent company to repay the loan ever. Sure, it’ll appear on the parent company’s books as a debt and that could be a problem in certain circumstances but there’s an easy way to deal with that. Simply wind up the not-for-profit company and the debt can be written off and the parent keeps the cash.

How to avoid profit in children’s care

The Scottish Government’s response to our paper was that the figures involved – £28k profit per child, per year – are “shocking” but also that they are not going to deviate from their paradoxical position that while any profit in children’s care is unacceptable, they are merely going to legislate to “limit” it.

As I hope we’ve seen here, that isn’t going to be enough. Even if the ‘limit’ on companies making a ‘profit’ from children’s care is set to zero, it won’t prevent those companies from extracting money from care or – by dint of paying workers as little as they can get away with – from carers. The only solution we can see is to bring the entire children’s care sector – both residential care and fostering – into public control.

This would, of course, be easier if we had a National Care Service to oversee the whole process but the failure of that Bill this year means we’ll need to take a more roundabout way of doing things. We still support an NCS and want to see it created in the next Parliament but children and carers can’t wait till then when we have opportunities now.

The next stage for our work on this will be to try to work out how much it will cost to bring that care into public ownership. We’re stymied by lack of data in this respect but early figures indicate that it might not be as huge of a problem as some fear – possibly on the scale of tens of millions of pounds rather than hundreds of millions. In this respect, it’s probably not dissimilar to our per capita estimates for nationalising all care in Scotland. After all, once we accept that it’s not acceptable to make a profit from caring for children, why should we treat adults any different?

Post-script – The Scottish Parliament’s report on the consultation on profit in children’s residential care can now be read here.

Use energy to win independence, rather than independence to win energy

/ Dr Craig Dalzell / Leave a comment

“The problem with the idea of cause and effect is that what is deemed the cause is an effect.” –  Mokokoma Mokhonoana

This blog post previously appeared in The National as part of Common Weal’s In Common newsletter.
If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

Scotland doesn’t need independence to start owning our own energy.

It feels like 2025 has come full circle for us at Common Weal. January started for us with an announcement from the Scottish Government that it was “not possible” to bring Scottish renewable energy into public ownership – an announcement made after the publication of a poll showing that more than 80% of people in Scotland favoured them doing so. We responded with a briefing paper called “How to own Scottish energy” which laid out the logic behind their announcement, why that logic was flawed and how they could bring energy into public ownership despite their own objections.

In short, the Government’s stance is based on an extremely narrow reading of the Scotland Act which actively prohibits the Scottish Government or Scottish Ministers from owning electricity generating, storage or transmission assets. Under this reading, there cannot be a “National Electricity Company” designed and owned in the same way as some public corporations in Scotland like CalMac or ScotRail.

However, we showed in our paper that various options were not blocked by this prohibition. For example, a Minister-owned “National Heat Company” could be designed to build and own district heat networks to keep us all warm (the prohibition is specifically about electricity, not other forms of energy). The Government could also build a National Energy Company and hand ownership over to a consortium of Scotland’s 32 Local Authorities. Or each Council could own their own energy companies. Or the Government could back the creation of a private energy company that is mutually owned by every adult resident of Scotland. Or, instead of complaining about the limits of devolution, they could be applying pressure on the UK Government to amend what is very clearly a completely obsolete prohibition in the Scotland Act (especially as a narrow reading of it also prohibits the Scottish Government from erecting solar panels on its own buildings).

Come forward now to December and the SNP have kicked off their 2026 election campaign with a new paper essentially saying the same thing as they did earlier this year except framing it around “we’ll do it, but only after independence”. On public ownership in particular, they aren’t advocating for the full-scale nationalisation of energy but their ambition appears to extend only to communities owning up to 20% of local renewable projects.

20% is far better than the current level of a rounding error above 0%, but it’s clear that even within devolution, the Scottish Government could do far more than it’s currently doing to support communities by giving them grants and loans to purchase stakes in developments, to pressure developers to sell or grant those stakes to communities as a condition of planning permission or the renewal of licences and to actively use opportunities like the “repowering” of developments, the end of their licence periods and break-clauses in contracts that would allow poorly performing developers to have their licences withdrawn and transferred to public bodies (in much the same way as the Government took ScotRail back from Abelio in 2022)

This doesn’t get the UK Government off the hook though.

Their recent announcement that some £28 billion will be added to consumer energy bills to pay for vital energy grid upgrades is going to stick in the craw of people whose energy bills are already too high. Worse will be that most of the profits of that investment will flow into multinational companies – including foreign public energy companies – with none returning to the consumers themselves. These investments, too, should be made on a staked ownership basis so that the people paying for them – us – should become shareholders in the investments and see a return on our investment. To make things perfectly clear, if the UK Government had announced that it was going to fully publicly own the assets built via this spending, then the added costs on your bill would be the same. In other words, the choice to publicly own the UK’s new energy assets will cost you the same as the choice to leave them in private hands.

“Can’t we use our public owned energy to help win back our independence, rather than claiming more weakly that we can use independence to win back our energy?”

The same will be true of assets in an independent Scotland – but given the Scottish Government’s “all in” approach to “inward investment” (something their plan published this week mentions more often than public ownership), I can completely see them making the same mistake and forcing us to pay for assets that someone else will profit from.

I freely admit that there are aspects of Scotland’s energy transition that are not in Scotland’s hands and which are not likely to be easily negotiated away as part of an adjustment to devolution such as Scottish consumers being forced to pay for extremely expensive and risky nuclear projects that even NESO (formerly, the National Grid) now says are not needed to meet Green energy targets but this does not let the Scottish Government off from making the changes it can make now rather than using the dangling carrot of independence as a means of delaying action. If anything, independence will come less from making a promise that might be fulfilled afterwards but by taking tangible actions now that push devolution to the limit and then saying to voters “if you want more, you know what to do”.

If it truly is, as the Scottish Government says, Scotland’s Energy – then shouldn’t we take back as much as we can now as use that as leverage to win the rest? Can’t we use our public owned energy to help win back our independence, rather than claiming more weakly that we can use independence to win back our energy?

When banks own housebuilders, house prices go up

/ Dr Craig Dalzell / Leave a comment

“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” – Mark Twain

This blog post previously appeared in The National as part of Common Weal’s In Common newsletter.
If you’d like to support my work for Common Weal or support me and this blog directly, see my donation policy page here.

The way we build houses in the UK could be costing you an average of almost £67,000. This could be fixed by making housebuilding a public infrastructure project rather than a means for very rich shareholders to transfer your wealth to themselves.

Volume housebuilder Taylor Wimpy released its annual report for 2024 yesterday and the details in it, which look excellent from the viewpoint of a corporate shareholder, reveal much that is broken with the UK’s housing sector.

The first important number in their report is the number of houses completed. Taylor Wimpy is one of the UK’s largest volume housebuilders – likely to be in the top three this year in terms of completed projects – yet built only 10,593 houses in 2024 – a substantial reduction over the previous three years (though they claim to be on track for about 14,000 this year).

The second is their claimed operating pre-tax profit of £416 million. The word “profit” is a very fluid term in the world of corporate accountancy as it’s relatively easy for companies to move money around via “one time charges”, inflated director bonuses or “loans” to subsidiaries or parent companies, so a better number to judge a company like this is the money it granted to its shareholders as a dividend as this represents money extracted from the company and not reinvested in any way (not even in the form of the labour of those hypothetical overpaid directors). The dividend for shareholders in 2024 was £339 million.

This means that the houses built by Taylor Wimpy in 2024 generated a dividend to shareholders of an average of almost exactly £32,000 per house. This is how much lower house prices could have been had the company not been in the business of extracting profits via dividends. Had the company been a not-for-profit business entirely, then its houses could each have been almost £40,000 cheaper.

It gets worse for you, the house-buyer, because it’s very likely that you’d be taking out a mortgage to buy that house and you’ll be required to pay interest to the bank on that loan. £40,000 added to a 25 year mortgage at 4.5% interest will result in you paying back £66,700 over that time. To say again, this isn’t the cost to you for paying for anything to do with the construction of the house itself. This is the cost to you for paying interest on the additional loan you took out to pay for the profits of the company, most of which were paid out as dividends to the company’s shareholders.

And who are those shareholders? Our old friends, US based asset managers BlackRock and Vanguard Group are near the top of the heap, owning about 15% of the company between them. Several of the other owners are banks like HSBC and Barclays. This means that if you have a Barclays mortgage, then part of the interest you are paying on your mortgage is being used to service the loan you took out to pay the dividend they gave to themselves to inflate the price of your house.

If Scotland had a National Housebuilding Company as we’ve advocated for the best part of the last decade, then we could be building houses at as close to not-for-profit as possible and could reinvest any surpluses into other public infrastructure to make the places around our houses and the services we need in our community more resilient.

If we built the houses to the plan proposed in Good Houses for All, then they would be constructed at a far higher quality than the conventional timber frame “diddy boxes” (our Board Director and premier architect Malcolm Fraser’s not-so-affectionate name for them) favoured by the volume development sector and would force remaining private developers to drastically improve the quality of their constructions (doing so wouldn’t even reduce their profits because such buildings are now cost-competitive with the diddy-boxes and then create further savings in terms of energy costs).

“If the whole of the UK brought in a Land Tax equivalent to our suggested baseline value of 0.63%, then Taylor Wimpy would owe an additional £2.14 million per year on its banked land”

A final point to note in their report is the amount of landbanking they do. Landbanks are when a company buys up land but then does not build on it for an extended period of time (or sometimes never, or the land itself becomes a commodity to be traded between companies). The report states that the company currently owns £3.4 billion worth of land spread across 79,000 “short term plots” and 139,000 plots in their “strategic pipeline”. They also purchased more plots last year than their number of completions so the total size of their landbank has increased. Given their completion rate over the past few years, they could stop buying land for around 20 years without risking running out.

Decreasing the supply of land without putting it to the intended use of housebuilding is a major factor not just in inflating the price of land but also actively preventing land from being used for building either by other volume developers, by Local Authorities or even by enterprising self-builders. Scotland should consider bringing in a Land Tax to charge companies for the land they own and should consider an additional surcharge on the land tax to account for vacant or landbanked land (which would encourage developers to build so that they can get the land off their books). If the whole of the UK brought in a Land Tax equivalent to our suggested baseline value of 0.63%, then Taylor Wimpy would owe an additional £21.4 million per year on its banked land – still a small fraction of its overall profits.

The way we build houses in this country is badly broken and has resulted in volume developers constructing cheap, cold, damp houses that are not fit for the purpose of living because the purpose of the houses is to extract wealth and deliver it to shareholders. Until we move to fix that and to end the financialisation of housing, we’ll all keep paying a very real and very substantial price for the roof over our head.

SNP Members back Common Weal’s public energy strategy (again)

/ Dr Craig Dalzell / Leave a comment

“All the mega corporations on the planet make their obscene profits off the labor and suffering of others, with complete disregard for the effects on the workers, environment, and future generations. As with the banking sector, they play games with the lives of millions, hysterically reject any kind of government intervention when the profits are rolling in, but are quick to pass the bill for the cleanup and the far-reaching consequences of these avoidable tragedies to the public when things go wrong. We have a straightforward proposal: if they want public money, we want public control. It’s that simple.” – Michael Hureaux-Perez

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The SNP members at their conference this month backed a major energy motion supported by the SNP Trade Union Group (TUG). This motion was developed in consultation with the STUC and with energy experts including myself and deeply integrates several aspects of Common Weal’s proposals for reform of the Scottish energy sector – including by moving forwards plans to bring energy into Scottish public ownership.

The motion was passed by acclaim and without objection meaning that this is now the fourth time that the SNP members have voted for an energy motion including public ownership at their national conference – each time achieving overwhelming or unanimous support. You can watch the presentation of the motion starting from the 1 hour 10 minute mark here.

The motion itself (pictured above) focusses on six key areas which are worth explaining in some detail.

1. Achieving Equity Stakes

Something that Common Weal has long advocated for is for the Government to stop just handing money to very large, often already very rich, companies in the form of tax breaks, loans or outright grants is no longer appropriate for a renewable energy sector that has for many years now demonstrated the ability to make a profit without public subsidy. At the same time, we’ve been shouting for some time about the obscenely high level of foreign ownership in the Scottish economy – particularly within the fundamental economy like energy.

Instead of just throwing money at the sector, the Scottish Government should demand equity – ownership shares – in return for public money and should even demand a public equity share as a precondition for planning permission or the granting of option rights in projects like the successors to ScotWind. Denmark recently did precisely this, calling for a minimum 20% public stake in offshore renewable projects.

This is, of course, a bit easier for Denmark as they have several publicly owned energy companies who, by definition, meet that stake simply by doing their job. Scotland – starting from the position of not having a public energy company – may have to take a position similar to that of GB Energy, being a kind of silent investment partner who merely provide the money and take the profits rather than taking an active role in developing the project.

However this should be merely a first step where small stakes are used as a training ground to build up the experience needed for the Scottish energy company to start joining projects as a co-developer, start to bid for projects on their own and then to move to a “no bid” process whereby the Scottish energy company simply start running all new Scottish energy projects by default.

The second part of the proposal is important for the initial “silent investor” stages. It would not do for the Scottish Government to be effectively investing in and buying ownership stakes in companies who treat their workers unfairly, so this provision would be an additional incentive for companies that if they want the support of Government then they have to meet a minimum standard of workers’ rights.

This is the approach the Scottish Government took to distinguish themselves from the UK with their “Green Freeports” which does show that the Fair Work principles are themselves not strong enough and might be of limited actual impact, but they do still represent a floor below which Government-supported jobs should not fall.

2. Appropriate ownership limits and break clauses

One of the things we discovered when researching for our second ScotWind paper was the discovery that the lease terms for offshore wind projects can stretch into multiple decades despite the turbines themselves reaching “breakeven” and starting to make a profit sometimes after only five or seven years or so. The “NR4” round of offshore wind in England promised a 60 year lease period for wind turbines.

With a normal lifespan of 20 to 30 years, this means that the lease would cover the operational lifespan of two or three generations of such turbines and if the five year payback period is achieved, then the lease could generate up to 50 years worth of energy profits.

Our default position is that until Scotland has the capacity to manufacture and install turbines ourselves then it’s fine to hire a developer to do it for us and perfectly acceptable for them to expect to recoup their investment and make a reasonable profit but that after a lease period that is as short as practical (say, ten years), ownership of the turbine should then be transferred to Scottish public ownership.

There is a caveat here. If the turbines have a 20 year lifespan, then nationalising them on year 19 would effectively just mean letting the corporations take all the profits and then socialising the decommissioning costs (much like what has happened with the Scottish oil sector).

In addition to a short lease there should also be strict break clauses whereby if the developer does not meet minimum standards such as on workers’ rights or if they break promises to invest in local supply chains or otherwise no longer meet reasonable standards as an operator in Scotland then the Government should activate a break clause in the contract, pull the lease in and give it to a Scottish public operator – this is precisely what the Government did in 2021 to nationalise ScotRail.

This is also how Scotland effectively nationalises all of our renewable energy for no cost to the electricity consumer. All we need to do is ensure that the current generation of generators are brought into public hands soon enough that they can pay for their replacements. This doesn’t just need to happen at a national scale with large developments like ScotWind. This can scale down to the community level where communities should be able to take over small onshore wind and solar farms.

That a community in Scotland recently failed to take over their local wind farm because a Scottish public body didn’t even consider the possibility of this shows how badly out of step Scottish policy is with the will of the people right now (I’m told that the community in question is now in the process of trying to buy out the land under the turbines so that they’ll get the rent from that and will control the next round of leases in the future – good luck to them).

3. Local supply and retrofitting

There is a massive mismatch between the Scottish Government’s energy supply policy and their energy demand policy (such that the latter exists). We all recognise that the climate emergency means that we need to use resources more efficiently. We also recognise that the vast majority of fuel poverty is caused by the fact that we need so much fuel to heat our homes. New buildings could be (but aren’t being) built so that they use an absolute minimum of energy (a properly built Passive House can use less energy to heat in a year than yours does in a winter month).

Transport policy could also be built to minimise energy use via much greater use of public transport for the vast majority of people. That traffic jam your stuck in where every car has an average of 1.1 people inside it is just about the least efficient way of moving people that could possibly be devised. Turning that traffic jam from a queue of fossil fuel burning cars into one of electric cars might be cleaner, but it’ll still double Scotland’s current electricity demand (inefficient heating would double it again).

So this part of the motion aims to double down on efforts to retrofit buildings and to boost local supply of materials to do so (for instance, the vast majority of sustainable insulation made from things like cellulose is imported into Scotland despite so much of our land being covered by monoculture sitka spruce plantations)

This week in one of our daily briefings (sign up here to get a short article on a news story that caught our eye every weekday) was on the story that one of the UK’s insulation projects had failed so badly that 98% of homes covered by it need to get it ripped out and redone. We outlined how to do this kind of work better not by relying on throwing money at companies and then not checking their work but by establishing the task as a public works infrastructure project to properly coordinate it and make it cheaper and more efficient to do. This plan has won favour at previous SNP conferences but, as with so many of our plans for public infrastructure, has been ignored by the leadership.

4. Establish an energy company

The SNP membership has supported a Scottish public energy company since we started lobbying for it in 2017. The SNP leadership has had to be dragged kicking and screaming towards that support too. The first Scottish Government plan for a Scottish electricity retail company fell afoul of a UK energy market that overwhelmingly favours large cartels over small providers and, as we warned at the time, an energy company that lacked its own generators and other assets would be entirely at the mercy of global energy price spikes. That proposal was dragged along without the reforms we warned would be needed until it was scrapped in 2021.

Earlier this year, another push from members to get the policy back on the books was blocked by the Government under the excuse that it couldn’t be enacted under the limits of devolution. We responded with a paper laying out six ways that Scotland could own Scottish energy assets under devolution – including via a network of municipal energy companies or via a National Mutual model where Scottish residents are shareholders in the company instead of Scottish Ministers (which is the actual thing that the Scotland Act blocks).

“The excuse that Scotland simply has to let “Foreign Direct Investment” suck our country dry, again, isn’t washing any more.”

This paper forms the heart of this part of the motion and we’re very happy that the SNP conference unanimously supported it. It is now clear SNP policy that Scotland should publicly own Scottish energy assets via whichever means that Devolution allows. I would favour either the Mutual model where the company is collectively owned by all of the people of Scotland or, failing that, by a National Energy Company collectively owned by the 32 Local Authorities.

Either way, the NEC should be combined with a mandate for the NEC to actively support municipal and community energy companies – co-investing with them in Public/Public Partnerships to help them bootstrap each other up to the point where the larger scale proposals outlined above like taking over existing developments at end-of-lease or outright developing ScotWind-scale projects becomes viable.

What is clear now is that the Scottish Government has run out of excuses. Their refusal to adopt a policy of publicly owning Scottish energy has not more legislative barriers left and now flies directly in the face of the will of their own party. I would expect to see their upcoming election manifesto reflect this will and, should the SNP be part of the Government after the elections, I expect to see proposals to bring about the NEC laid down and developed with all possible speed.

5. Invest in training and a Just Transition Jobs Register

The Just Transition is not going well. Despite the best efforts of polluting megacorporations to try to ride their climate emergency through just a few more quarterly shareholder targets, people are leaving the sector in Scotland either through choice or – as the closure of Grangemouth has highlighted – through the choice of others. However, we’re not seeing these skilled workers move into the renewables sectors at anywhere near the rate we need.

A policy passed at SNP conference a few years ago was the idea of a Just Transition Jobs Register. This would track how many people where being employed in the fossil fuel sectors and in the renewables sectors, would measure how many people were moving from the former to the latter each year and would actively seek to improve pathways to increase that flow. When the policy initially passed it was, again, completely ignored by the party leadership so its inclusion here in another motion must serve to highlight its importance.

6. Putting Communities and Workers First

Where the Just Transition is happening it’s too often being seen as a thing to do to workers, not as a thing for and by workers. I’ve seen corporate “Just Transition” plans that were entirely designed to transition the /company/ to a more sustainable footing but did so by replacing older workers with new apprentices rather than retraining existing staff. Meanwhile, studies like the one done by Platform in 2020 show that workers in the affected sectors already have very good ideas about how they’d like to see a transition happen while highlighting their concerns that they lack the power to do it.

Communities have similar ideas but also lack power. There are growing concerns about the flood of renewable developments in and around communities or the rise of electrical pylons designed to shunt energy past communities who are suffering from fuel poverty while not receiving any of the benefits of hosting the infrastructure. Even a plan such as ensuring that solar panels are built on houses and brownfield sites before taking away amenity space or Common Grazing land from locals would go a long way to helping people buy into the transition rather than turning against it because they see their environment transformed only to benefit companies and landowners.Conclusion

This motion represents a major victor for Common Weal’s influence within Scotland’s political circles but it’s an even bigger one for SNP members who have voted, again, for policies like this despite the party leadership trying to tell them that it couldn’t be done. The excuse that Scotland simply has to let “Foreign Direct Investment” suck our country dry, again, isn’t washing any more.

This isn’t merely an issue confined to the SNP, however. The other progressive parties in Scotland are all overwhelmingly in favour of policies like this too. It would be a Courageous Decision (in the Yes Minister sense) for leadership to continue to ignore not just the will of a majority of Scottish voters on this issue but the unanimous decision of their own party’s membership at their own conference.

Which hasn’t stopped them up till now – and therein lies the issue even with motions like this. There is still a vast gulf between “what members instruct their party to do” and “what the party actually does” with very little in the way of accountability or oversight to bridge that gap.

This is a problem in all political parties and may be a fundamental problem with political parties that limit their ability to manage a democratic government. The solutions to that are probably a topic for another time, but until then I encourage the members who supported this motion to make their voices heard. Do what you can to ensure that its principles make it into the upcoming manifesto. Do what you can to ensure that your local candidates support those principles. And make sure that they understand that your support of their election is dependent on them listening to their members.

And the message to other parties: If the SNP won’t do this despite that election, who will? Perhaps you?

Private Equity Ate My Cats’ Lunch

/ Dr Craig Dalzell / Leave a comment

“The standard private equity playbook: jawbone the unions, cut costs even at the price of damaging longer-term success, do a sale-leaseback of real property assets, take whatever public money you can get from communities eager to save their industries, and do an “add-on”—the Indiana Glass buy. And collect fees.” – Brian Alexander

This blog post previously appeared in Common Weal’s weekly newsletter. Sign up for the newsletter here.

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Regular followers will know of our three Policy Podcats (we still miss you Jinx) who were frequent uninvited guests on the old Policy Podcast. Being cats, they’re generally quite picky about the food we buy for them and it took us a while to settle in with a company that they liked. Last month, that company went bankrupt after 50 years of trading and after just a few years of being bought out by a private equity firm.

Private equity is a parasite on the already unwell body that is consumer capitalism. It takes the logic of capitalism to its furthest extreme and is designed to supercharge the extraction of value from a system that is already designed to extract (not create) value.

The version of capitalism that you’re probably thinking of runs something like this. I, a Capitalist with access to some degree of wealth, am able to invest that wealth into some kind of venture. Perhaps I’m particular passionate about the production of widgets and wish for everyone to be able to buy them.

So I build a widget factory, stock it with widget-making machines and hire people to run those machines. I pay people for their time, but ultimately the value I create by buying materials for the widget factory and selling the widgets is mine to disburse as I please. If my factory makes a profit, I make money.

Marx lived in that kind of world and pointed out that while the Capitalist owned the machines, it’s the workers who run them who actually create the value – they are the ones who produce value through their labour. Without their labour, the machines don’t run (though the rise of automation may be changing that assumption).

However, so long as the workers don’t own the capital, they don’t have the power to deploy that capital and thus are ripe for exploitation by those who own but do not labour. Communal ownership – Communism – was his solution to that imbalance as workers would share in the risk of the business but would also share in the power granted by it too.

It has been shown even in today’s world that worker ownership of businesses in Scotland results in better working conditions, better worker morale and higher productivity. We don’t live in a mostly Communist world though and so Capitalism ended up moving to the next stage in its development.

You see, while I, the Capitalist, can make a fair bit of money by building a widget factory then buying and selling widgets, that’s still a lot of work and a lot of risk. Under market capitalism, other people can build widget factories and maybe their widgets are better than mine, or cheaper, or they have better advertising and they end up selling more than I can.

It would be faster and easier to look for someone who has already built a factory and buy it from them. Maybe I could buy several and merge them together. If I buy ALL of them, then I have a monopoly and can control the market. Even if I don’t get all that way, then I can at least split the market between as few of my friends as possible and we can fix prices together.

Capitalists have always hated “free markets”. What they want are cartels and monopolies. This is how we get the situation where, for example, virtually all luxury sunglasses – regardless of their “brand” – are owned by the same company.

“BlackRock owns about 5% of just about every company on the planet that issues enough shares to attract its attention.”

But what if there’s an even faster way to wealth? We could, for example, not own a single factory but instead buy a small share in all of the factories. Not enough to need to bother with the responsibility of actually doing anything with them, but enough to extract a small profit from all of them.

Asset Managers like BlackRock and The Vanguard Group make billions this way – BlackRock owns about 5% of just about every company on the planet that issues enough shares to attract its attention. It’s very telling that when the world was very concerned about the monopoly power of the merger of computer software giants Microsoft and Activision, BlackRock already owned shares both of them and so could continue extracting its passive income regardless. That one company extracts about $20 billion every year from the global economy without having to do much to earn it.

But what if there was an even faster way to make a LOT of money? Enter, the world of private equity.

Unlike the more passive actors like BlackRock, private equity firms take a much more active role in the companies they own and to do this effectively, they need to own substantial fractions of them – perhaps owning them outright. Unlike a Capitalist buying out their competition though, they tend to spread themselves across multiple sectors. Crucially, unlike the widget entrepreneur, they are much less attached to the output of the widget factory than they are about the profits they can extract from it. Those profits can and should be boosted as much as possible, as quickly as possible.

And one way to do that is to cut costs – fire half the workers and get the other half to work twice as hard. Maybe even replace them with robots that make widgets of questionable quality, but don’t need to be paid at all. Cut materials. Cut research funding into the future of widget development. You could even take more money from the company than they actually make in profits – get them to remortgage all of their buildings and max out their credit cards then give you a “loan”.

This is why you see so many companies that were previously profitable suddenly start racking up massive debts when they’re bought by private equity. And when it gets too much and the banks start calling in those debts, you can make one last round of profit by firing everyone and selling the company’s assets for parts. What was once a profitable widget factory becomes a debt-ridden shell of itself and collapses.

This is what appears to have happened to the podcats’ food company. There’s a happy ending for them in that we’ve managed to source another company and the picky little furballs are eating it just as happily, but the march of private equity through the ruins of their own making continues.

Scotland needs a better way of managing its manufacturing and service economies. We need more in the way of sustainable and equitable investment. If you saw our daily briefing this week on the warnings about losses at the Scottish National Investment Bank you can see some of what we’d like to see – less parasitic profiteering and more patient finance, so that we can have an economy that works for All of Us, rather than just allowing a few already-rich folk to “win” capitalism at our expense.