Thursday, March 24, 2011

Job losses in the oil industry?

Oil companies claim that tens of thousands of jobs will be lost as a result of a £2 billion levy on the oil industry in the UK to pay for general tax cuts. I'm not convinced.

Nobody wants to pay more in tax than they have to, of course. However, the price of oil isn't based on what it costs to produce. It is a commodity, and whilst the price has been driven up as a result of speculation and some restriction in demand following the turmoil in the Middle East, the cost of its production hasn't substantially changed. Supply is largely regulated - both on a macro level (OPEC setting production quotas) and on a micro level (oil tankers reportedly delaying unloading to wait for the oil price to rise further).

The effect of the rise in oil price has been a huge rise in profits for oil companies - Shell alone made a profit of over £10 billion in 2010. Certainly whilst they are making this money, they are likely to continue to plough it back into R+D (creating more jobs), and higher dividends. Certainly the companies who have this money available to them are likely to use them as engines for growth of the company. But to say that jobs which might be created in the future are dependent upon such windfall profits is misleading. And I'm not convinced that it is better overall for the oil companies to keep all of that money than for the government to redistribute a proportion of it.

The real problem perhaps lies with the capitalist system that seeks above the welfare of individuals to return a profit. But since the underlying motivation of the capitalist system is to look after the money of those individuals, I suspect disentangling this lies far beyond the competence of any government - and most of the alternatives have proved themselves to be no better.

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