Last Thursday, Shell announced another quarter of record profits of $9.5 (£8.2) billion, more than double their profits this time last year. BP showed off even stronger growth on Tuesday with profits of $8.2 (£6.9) billion. The results deepened a now familiar story: a colossal price shock, inflicted by a war of aggression unrelated to these companies’ historic investment decisions, has allowed them to reap record profits—at the expense of households and businesses worldwide, and at the risk of a global recession.
In trusted fashion, the bumper profits have overwhelmingly been funnelled not into productive investment but straight into the hands of shareholders. Through a combination of dividends and share buybacks Shell and BP respectively forked over $6.8 (£5.8) billion and $4.1 (£3.5) billion in Q3 alone, with more planned for Q4.
The circumstances of this shock are exceptional. But the system transmits it effects. If we cut through all the widespread and justified outrage, what’s most interesting is how we can glimpse in the example of these firms many of the deeper workings of modern capitalism. From the illusory nature of free markets to the centrality of ownership of scarce assets; from the imperative to plunder the earth and its poorer nations to the vicelike grip of shareholder primacy; from the power of lobbying to the ambiguous relationship between profit, production, and the social good—all along these firms’ supply chains we observe, in short, capitalism in microcosm.
To point out the often fatal conflict between the profit motive and the interests of climate and society (a conflict routinely drawn out and elided by herculean lobbying efforts) is cliché enough. Even as we stare down the barrel of climate breakdown, fossil fuel companies’ attempts at greenwashing ring hollow: analysis by the Common Wealth think tank has shown that for every dollar invested in low carbon, BP invested 26 in fossil fuel, and paid 46 to shareholders. Shell’s record is scarcely more encouraging.
Perhaps more remarkable is how, even suspending our environmental hang-ups, productive investment as a whole (dirty or clean) trailed shareholder payouts at both firms for at least two quarters running. Though extreme in magnitude, the subordination of actual production (let alone workers) to shareholders is not an idiosyncrasy of oil and gas, but a hallmark of the last 40 years. Economist J. W. Mason has forcefully shown how there ascendance of shareholder primacy in the 1980s has been a powerful contributor to the stagnation in productive investment ever since, transforming the firm into a cash cow for flighty investors looking for reliable and more importantly liquid investments.
Taken in the large, the process playing out in front of us in the fossil fuel sector is doubly extractive: first, the raiding of the planet for its natural wealth; and second, the raiding of the firms themselves by financial capital, under the mantra of shareholder primacy.
Scarcity and Exclusivity
Obviously fuel is foundational to all areas of the economy. But what exactly is so special about these companies that these windfall profits are theirs to capture? The deceptively simple answer is the scarcity of the assets over which they have secure ownership rights and control. But the combination of these two key elements—scarcity on the one hand and ownership on the other, the latter being flagrantly political in nature—is key both to understanding the foundations of our crisis, and to throwing open the our political horizons for tackling it.
As Brett Christophers has detailed, the feature is central to each of the most profitable industries in any modern economy. It explains the lengths to which firms go to secure such property rights, and, in the case of Shell and BP, is certainly not unrelated to their early-twentieth-century imperialist origins—BP was born the Anglo-Persian Oil Company—and their ongoing adventures in the Global South. Counterintuitively, under such conditions of scarcity, profitability may even encourage less production rather than more. Christophers and Timothy Mitchell and have each observed this in fossil fuels, just as Josh Ryan-Collins and co-authors have observed property developers maximising land values by obtaining but never delivering upon planning permission to build housing.
The energy sector exposes many free market shibboleths. It is also ironic that the most deliberate policy attempt to inject competition into the system saw its posterchild Bulb, with 1.7 million customers, pass into administration at great public expense. Separately, the complex energy pricing systems that have facilitated the current surge in energy costs undermines the logic of efficient markets where supply and demand neatly intersect. At one end of the supply chain, commodity prices are prone to volatile cycles, exacerbated by the herdlike behaviour of speculators on financial markets. At the other end, household bills are tied to the highest costing source in the energy mix—natural gas—preventing the low cost of renewables from being passed on to consumers.
The Public Behind the Private
As with most strategically important sectors, the oil and gas industry is a perfect example of private enterprise flourishing on the back of public support. From licensing procedures that lease out these highly sought after drilling and exploration rights, to the generous state investment subsidies and tax reliefs that grease their routine operations, the system is at every stage underwritten by the financial and legal backing of the state. Meanwhile, Shell and BP’s Q3 contribution to Rishi Sunak’s reluctantly introduced ‘energy profits levy’ was little to nothing. As ever, ‘privatise the gains, socialise the losses’ is the governing principle.
The ideology is not merely perverse at a distributive level; it fundamentally debilitates society’s efforts to coordinate shared objectives, such as managing a pandemic or fighting climate breakdown. As Juan Carlos Boué and Philip Wright have written, despite owning these resources, the state has turned itself into a mere ‘adjustment variable, to be fiddled with in order to secure the profitability of sub-marginal investment profits’. More generally, rather than directly martialing its own sovereign resources towards its public objectives, the state must instead entreaty privileged private interests into doing the job for them but according to an entirely separate incentive system (the profit motive), which the state must accordingly re-calibrate through elaborate and ultimately costly manoeuvres that hollow out the very public balance sheet they purport to be protecting. This convoluted process by the ‘de-risking state’ is central to what Daniela Gabor has termed the ‘Wall Street Consensus’.
If there’s a positive message hidden in the above, it’s that there’s nothing immutable about how our economy metabolises shocks from wars, pandemics, and other crises. But the institutional transformations needed to take advantage of that fact are deep. More extensively taxing windfall profits and shareholder payouts are necessary measures to relieve the current crisis and put money back in the hands of the households that need it, but remedying its roots requires reasserting the state as a strategic player that must deliver on the public’s claim to our shared wealth.