Raising prices may seem an effective way to resolve a fuel shortage. But economists should learn to value solidarity.
One of the side effects of a crisis such as the fuel shortage is a widening of the gap between economists and ordinary people. Most economists think that when rationing becomes necessary, price is the only weapon to use. For oil companies actually to defer price increases was quite the wrong response. If only the price had risen to £3 per litre for a few days, there would have been few queues, no fights, and everything would have come back to normal much more quickly.
The argument can be developed more generally. It is impossible for the government to decide sensibly what is an essential service. We all agree that the NHS should take priority over holiday motoring. But the NHS uses petrol to take the chief executive of the St Swithin’s NHS Trust to lunch. And holiday motoring is necessary to bring a devoted surgeon back from his well-deserved fishing holiday in Scotland to continue his life-saving work.
The particular merit of price as a rationing system is that it lets people make decisions for themselves about what is essential and what is not. High prices get rid of the people who queue for ages to top up their tank. You can begin an important journey with the confidence that if you really need petrol, it will be there. All other forms of rationing lead to arbitrariness and anomalies in the short term and to inefficiencies and corruption in the long run. The history of the Soviet Union, or the Common Agricultural Policy, tells us that.
I used to make this case myself. I never succeeded in persuading anyone, and it was not just my own lack of eloquence: none of my economist colleagues were any more successful. The counter argument usually began by citing the problem of the impoverished old age pensioner. She would be unable to find £3 per litre to visit her beloved grandchildren, while Bentleys and Jaguars would pass by carrying tycoons to dine at the Ritz. I would reply that few poor people would find their lives permanently ruined by a few days without petrol, and there was nothing at all in the shambles of the last week that stopped such events from happening. It is understandable that people should argue for higher pensions or higher taxes on fat-cats, but this is irrelevant to the price of petrol.
My assailants would go on to denounce profiteering. I used to regard this riposte with derision. Doesn’t the capitalism system depend on profiteering? But now I am not so sure. Perhaps it doesn’t depend on profiteering, if by that we mean making money from the misfortunes of others. Perhaps such profiteering undermines the legitimacy, and even the efficiency, of the capitalist system.
When Lloyd George denounced men who had done well out of war, his jibes required no elaborate explanation. Most people had not done well out of the Great War. (Lloyd George himself was an exception, although even he came a cropper in the end). The war had killed millions of men, and brought hardships to almost every household. These hardships were not a matter of individual responsibility but the result of a collective calamity.
Today it is possible to portray as public benefactor a man who stockpiled munitions to sell them at high prices when the Battle of the Somme went on longer than expected. His speculation ensured that the availability of shells was matched to the needs of the army. Inept generals had not achieved as much. And only by bringing about such an outcome could a profiteer make money. If he still had an arsenal of guns when the war was over, he would have lost his shirt.
But these rather marginal benefits are potentially offset by the damage done. Damage to the solidarity among soldiers and between soldiers and the public which is essential to the prosecution of the war. Such solidarity persuades individuals to act effectively as a group – necessary at the Western Front. And it establishes an acceptance that individual misfortunes – death, injury or financial loss – are as far as possible shared by the community rather than assumed by individuals. As soon as the management of the crisis becomes a process from which some gain while others lose, solidarity is fundamentally undermined.
Now where war is concerned, the merits of promoting social solidarity rather than incentivising individuals are entirely clear-cut. Henry V told his troops at Agincourt that gentlemen of England now abed would think themselves accursed they were not here. He did not say that these gentlemen would reward them handsomely for the successful completion of their mission, and there is no reason to think the sleeping gentlemen did. Shakespeare’s call to arms was not only more effective, but also cheaper, than the call to arms of rational economic man.
So solidarity is an economic as well as a military virtue. If you want a genuine smile on the face of the fast food server or the flight attendant, it has to come from a belief in the organisation and its values rather than obedience to the company training manual. And the effectiveness of the collectivised Japanese in achieving greater quality and reliability than the incentivised Americans making cars and CD players shows the value of commitment to the organisation and the product.
The English, it is often said, thrive in a crisis: hence the mostly good-natured responses to the minor austerities of fuel shortages. This attitude is a social asset we should not treat lightly, and it is a commercial asset as well. Which is why I no longer attempt to argue the economist’s case.
