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Wednesday, 27 February 2013
Will Shale Gas Save the British Economy?

According to the Daily Telegraph, the chief executive of Centrica, the company that owns British Gas, Mr Sam Laidlaw, said at Davos that hopes were misplaced that development of shale gas deposits in Britain would be a miracle solution to the country's declining North Sea oil production, and "a game-changer" for the British economy. This was in marked contrast to the United States, where the recovery of shale gas has lowered energy costs to US manufacturers and turned the country into a net exporter of energy.

Mr Laidlaw cited several reasons for his pessimism; for example the environmentalist opposition to shale gas extraction, the density of the population in the gas-bearing area, the lack of infrastructure to distribute the gas and the absence of political will to overcome difficulties, political and other.

However, seems to me that Mr Laidlaw misses the point about shale gas and why it will not be, for Britain, what he calls in his horrible cliché "a game-changer". It would not be a "game-changer" even if it were developed to the full; rather it would be a game-preserver. It would hold back change rather than promote it.

Why is this? Surely cheap energy and vast tax revenues would transform our prospects?

For Britain to hope that the exploitation of a natural resource would rescue its ailing economy seems to me like a man who purchases lottery tickets in the hope that they will secure his old age. Britain is not Kuwait, where a valuable natural resource is so abundant by comparison with the size of the population that all it would have to do to be prosperous is to pay someone else to do the work, sit back and relax as the revenues rolled in. This is an impossible dream — or nightmare.

What would we do with our large revenues? It is not necessary to be Nostradamus to imagine. At least one government would use this free gift of Nature (give or take the costs of extraction) to increase the size and emoluments of the so-called public service, and also the generosity of welfare payments: increases that any subsequent government would find it difficult or impossible to reverse. It would take enormous courage to do so, and courage is not exactly the first characteristic that one thinks of in connection with the British political class. Thus any change wrought by the large revenues from shale gas would almost certainly be in the wrong direction and would serve only to put off the evil hour of reckoning.

As for industry, something rather similar would probably happen. Cheap energy would obviate, at least to a degree, the need to become more efficient; it could (and I think would) be used to maintain wages that would otherwise not be justified and to avoid the necessity for innovation and adjustment. It would allow cheap imports and thereby raise not just the standard of living without concomitant effort, but permanently raise expectations. If the cheap energy were exhausted, the supposedly "healthy" economy would very soon stand revealed as a painted corpse.

Pasteur famously said that chance favours only the mind prepared, that is to say a mind that is alert, knowledgeable and flexible enough to realise the importance of phenomena that it happens upon by chance. In the same way, one might say that gifts of Nature, in the form of resources, favour only an economy prepared. The United States still has an economy so prepared; the United Kingdom has not.

What is the difference? No doubt it is a question of degree rather than of type, but as Engels once remarked, degree, when it is marked enough, turns into type.

Britain would resemble Nigeria more than the US in the way in which it responded to the gift of the gas. A mad politicised scramble for control of the revenues would ensue; they would become the object of political competition, possibly of a very vicious kind. Of course, shareholders in the gas companies and the workers for those companies would participate in the real wealth created, and there would no doubt be a multiplier effect; but the beneficial effects would soon be dwarfed by the harmful ones. In other words, because of out inveterate political entrepreneurialism, we would suffer what was once called the Dutch disease.

Naïve people often allude to the supposed paradox of African countries richly endowed with natural resources that nevertheless remain deeply impoverished. This is not a paradox at all: with the wrong institutions, the wrong ideas and the wrong culture, such resources can be a curse rather than a blessing, increasing in stability as the political fight over those resources becomes more desperate or acute, and undermining other productive activities. In the same way, incidentally, an educated population, if it is educated in the wrong things, imbued with the wrong expectations, is a curse rather than a blessing.

The corporatist culture of Britain, together with an underlying pessimism about the possibility of a durably high standard of living based upon our own intelligent adaptation to a constantly changing world, means that the real wealth that the gas would bring would be soon consumed in an orgy of consumption: sufficient unto the day would be the revenue thereof. But we spare no thought for the morrow not because we are ethical or philosophical followers of the Sermon of the Mount, but because experience has taught us to have no real faith in the future of our country. We are no longer a nation of shopkeepers, but a nation of political manipulators, whose main hope of betterment is a larger slice of whatever cake exists in the present moment. Moreover, we are economic puritans, as puritans were defined by H L Mencken: people who were afraid that someone, somewhere, was enjoying himself. We are afraid that someone, somewhere, is rich, and we would much rather impoverish him than enrich ourselves, slowly, by effort and accretion. Dragging people down is both easier, and to many much more gratifying, than raising themselves up: in whose possibility, in an case, they don't really believe, because there are so many people who would want to drag them down again should they succeed in raising themselves up.

So all economic advantage has to be for the present moment alone; a pound in the hand is worth two in a week. Of course the United States has more natural advantages than Britain; but its real advantage is that it knows how to take advantage of its advantages. And this is a cultural advantage.

First published in Standpoint.

Posted on 02/27/2013 5:15 AM by Theodore Dalrymple
27 Feb 2013

Dalrymple says, "the United States has more natural advantages than Britain; but its real advantage is that it knows how to take advantage of its advantages". How so? My fellow Americans certainly know how to dissipate their natural wealth in a hurry, with few social improvements to show for it. 

27 Feb 2013
Send an emailFrank S

One reason why shale gas won't bring cheaper power to Britain is that while gas is in short supply, people like Mr Laidlaw can charge more for it.

As indeed they do...

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