Policy Stability

From Conservative Party backbenchers and former ministers, to the Labour Party frontbench and media commentators, all are agreed that what business needs is policy stability. Specifically, that the planned ban on the sale of petrol and diesel vehicles from 2030 should be adhered to rather than having the target date pushed back to 2035 and that the separate schedule for the phasing out of gas boilers should also remain in place (though Labour have, typically, subsequently reneged on the latter). The suggestion that both would be relaxed was enough to prompt carmakers and energy companies to issue strongly-worded statements, ahead of Rishi Sunak's announcement, deploring what has been framed by the media as a watering down of the net zero by 2050 commitment and an attempt to create a divide (or "wedge issue") between the Conservatives and Labour ahead of next year's general election. At this point it would be wise to separate the base and superstructure. The political angle does not need much explanation and was widely anticipated after the Uxbridge and South Ruislip by-election in July.

What needs more investigation is why the automotive and energy sectors should be up in arms at this development. Behind the greenwashing, neither has a principled commitment to the environment, any more than the oil and gas industry does. There is also the apparent paradox of champions of free market capitalism demanding state planning. The key thing to understand is that "policy stability", or  synonyms like "predictability" and "consistency" in this context, are really just a subset of what Michal Kalecki termed more generally "business confidence". While this may be localised in questions of state subsidy, infrastructure support or trade guarantees in specific sectors, across the economy as a whole it boils down to the promise that government will avoid deficit spending, which would lead to full employment and so push up labour costs (and potentially necessitate increased taxes on capital). As you may have noticed, both main parties are in agreement on the need to avoid deficit spending, and to make the labour market less tight, so you can take it that capital is fundamentally happy. 

The idea that carmakers who commit to all-electric by 2030 will lose market share in the following five years, and so have particular cause for complaint now, assumes that electric vehicles (EVs) will continue to cost more than internal combustion engine vehicles (ICEs) beyond the next seven years. This suggests a lack of confidence on the part of manufacturers that the price of EVs can be brought down to the same level as ICEs by 2030. Why the lack of confidence? Is it a fear of hitting techological limits in manufacturing? That hardly seems justified given the pace of recent advances, notably in battery technology, and the fact that unit costs will inevitably fall as production facilities are fully converted. Is it a fear that geopolitical uncertainty will raise EV costs disproportionately? That's credible short-term, given the way the price of key battery components like nickel has fluctuated due to the impact of the war in Ukraine on supply chains, but you'd expect prices to return to normal a decade out (they've pretty much already done so as supply has adjusted).

A simpler explanation is the expectation of larger profit margins for the automotive cartel as the real cost of cars rises. That's something that has to happen anyway. While some people envisage a one-for-one replacement of petrol and diesel cars with electric models, and car manufacturers (like tobacco companies before them) see growth in emerging markets, the reality is that the rate of car ownership has to go into historical decline in the West first and elsewhere thereafter, with more use of public transport, if we are to not only reduce CO2 emissions but particulate pollution as well. That rising cost of cars may be initially offset for consumers through higher state subsidies (as in Norway currently), or by higher Pigouvian taxes on petrol and diesel ahead of an outright ban on sales. Naturally, car manufacturers aren't going to come out and demand an increase in road tax or fuel duty now, though that is the logic of their commercial position. Apart from the political ructions it would cause, this would highlight the extent to which the market is dependent on the state's active management, rather than being the product of competition. 

As the postwar history of the UK shows, when the government offers economic policy stability, such as in the area of prices and incomes, business has a tendency to carp about the constraints on competition and "management's right to manage" that this entails. The Thatcher revolution was essentially the capitalist class accepting instability (aka "creative destruction") through the effects of monetarism on industrial policy. This caused many businesses to fold, but class solidarity held because it opened up new routes to profit elsewhere, notably through privatisation. The demands for policy stability today reflect the extent to which capital since the 1980s has become dependent on the neoliberal state not only to create the legal conditions for a market to function but to actively manage changes in the parameters of that market and to intervene in favour of certain businesses (to "pick winners" in the derided parlance of the 1970s). The secular trend over the last 150 years has been for the state to take an increasingly active role in the management of industry. "Revolutionary" eras like the 1980s should really be seen as the government forcing a reconfiguration of the economy rather than liberating industry from state control.

An example of picking winners was the subsidies provided to foreign car manufacturers like Nissan to base their European operations in the UK, a policy that continues down to today with government funding and guarantees for BMW to continue manufacturing Minis at Oxford. There is also the active role the government is playing in moves to delay the imposition of import tariffs on EVs between the UK and EU, where it is clearly pushing sectoral interests rather than national ones. This tight coupling of the state and industry obviously isn't novel, and the UK is in not an outlier in the way that it crafts policy to suit particular companies, but what is perhaps more unusual is the way in which the state has in recent years actively sought to shield car manufacturers from the consequences of government policy, for example over Brexit. The point is not the implicit admission that Brexit is economically damaging, but the explicit acceptance that the car industry cannot be expected to deal with changes in the commercial environment. The current kick-back against the government is about the loss or devaluation of guarantees and the exposure this entails to the market.

This extension beyond market-making to market-maintenance was made brutally obvious in 2008 with the bailout of the banks. This was excused as an exceptional act for a systemically critical sector, but the hurry to return the banks to private ownership was not delayed by the thought that perhaps being systemically critical meant they should remain in the public sector under democratic control. It should be obvious now that both car-making and energy are systemically critical in the circumstances of the need to reach net zero, just as energy, water and other utilities are systemically critical full-stop. It was also the case that the banks were "too big to fail", which highlights that when specific firms make up a large share of a critical sector they will always be able to rely on the state as the investor of last resort, much as was the case in the 1970s, though then predominantly through public ownership. But again, this appreciation of scale does not prompt the thought that these firms should be nationalised, at least not in Westminster and the City.

This week's theatre can be viewed superficially as the opening skirmish in the general election campaign, but perhaps a better reading is that it was a reminder to the car industry that their future hopes depend on the state's willingness to continue to underwrite their operations and to adjust the market to guarantee profits. We habitually imagine that the state is weak and can easily be held to ransom by certain industries, like banking and car-making, but that is a fiction. It's popularity in political discourse is because it is agreeable to both the libertarian right, who see the state as inherently weak and ineffective, and those on the left who imagine that capital is wholly separate from the state, which holds out the prospect that a socialist government could use the levers of power to adopt a more antagonistic attitude towards capital. The reality is that the state is powerful but also deeply intermeshed with industry. It is less of a handmaiden to capital and more of a pilot of a ship that sails in the interest of its capitalist owners. The ultimate stability it offers is not a firm hand on the wheel but a refusal to allow the deckhands access to the wheelhouse.