Draining Scotland’s capital

Predictably, the Grangemouth affair was resolved yesterday with the unions agreeing to a number of concessions deemed necessary to a “survival plan” for the plant.

Never mind the question of why the owners have been planning a £300 million investment into a business that is apparently so vulnerable that even longstanding agreements with workers are a threat to its survival.

As we wrote yesterday, there were plenty of signs that the management had engineered a “heads we win, tails the unions get the blame” situation. And it does look as though one of the targets of the game was to maximise the public’s input into the solution.

Yesterday we learnt that:

According to Ineos, the Scottish government has indicated it would support its application for a £9m grant to help finance its gas terminal plans, while the UK government has given “pre-qualification approval” for a £125m loan guarantee facility.

Many, including me, would say that a relatively small public subsidy is small price to pay for preserving thousands of jobs in and around the plant.

On the other hand, this public investment is being sucked into propping up a sunset industry when it would clearly be better employed in developing the post-oil economy that Scotland badly needs to build, and quickly, before North Sea oil and gas are a distant memory.

Having tasted milk, who is to say that Ineos won’t be back for more? Especially if, as reported, the oil refinery is losing money faster than the petrochemical plant.

I am glad for the Grangemouth workforce but, as energy policy, the rescue is only a sticking plaster. Scotland’s leaders need a plan to ensure that future public subsidies aimed at mitigating the decline of the oil and gas industry are matched by support for energy technologies that are not dependent on fossil fuels.

Otherwise Grangemouth will turn out to be the first step on the road to draining Scotland’s capital in a futile pursuit of what James Howard Kunstler christened the “fallacy of previous investment”.

Maths and realities

Overlying the human aspect of the Grangemouth closure is this indefinable feeling that the news story is being very closely choreographed.

All along, the national news angle has been that the threat to the petrochemical operation and refinery is rooted in union intransigence.

It’s that hoary old news media trajectory, which says that stick-in-the-mud unions prefer to shoot themselves in the foot by refusing to make reasonable concessions. If only they would roll over, goes the story, new investment will pour in and magically turn around the fortunes of the plant.

Yesterday, the BBC’s main online news story on Grangemouth ran to 1,600 words and mentioned unions 16 times. Only right at the end of the story did it mention the fact that the site as a whole is losing £120 million a year.

According to the BBC report, the petrochemical side of the business is losing £50 million a year, or £62,500 per full-time employee. That leaves the refinery losing £70 million a year, or £122,000 per full time employee.

Spread over the entire workforce, which includes around 2,000 contractors, the site’s owner is losing around £750 per week per worker.

Political

You have to ask what kind of concessions would be required from 800 petrochemical workers in order to turn around losses on that scale. And in any case the basis of the union dispute, according to the BBC story, seems to be more political (it’s linked to the Falkirk vote-rigging row) than industrial.

What’s not been mentioned in any of the coverage I’ve seen is the fact that the UK simply has more oil refining capacity than it can use.

Last year’s stories about the US becoming an exporter of refined petroleum products largely failed to mention how the situation arose.

The States used to import large volumes of petrol from the UK. That was until high oil prices drove domestic US consumption down to the point where local refineries could happily meet demand there.

Slump in fuel demand

So the US market has gone. British petrol and diesel demand has slumped too. Developing countries have a fast-growing appetite for road fuels – but as part of their development they’ve built their own refineries and petrochemical plants.

Now Grangemouth’s owner says it needs to invest £300 million (£90,000 per worker) in the petrochemical plant to reconfigure it to profitably handle a dwindling supply of low-ethane crude from the North Sea.

In the oil business of 20 years ago, £300 million would have been a sprat to catch a mackerel (more like a basking shark). In today’s world, where OECD fuel demand and economic buying power is fast fading in the face of $100 crude, such an investment easily starts to look like good money being thrown after bad.

From a purely business perspective, closing the plant now rather than later has to make mathematical sense under the circumstances.

I realise that that argument ignores the devastating economic and social impact that closure would have on a wide area around the plants. However, that prospect doesn’t explain why the unions, rather than the global economics of unaffordable oil, are being put in the frame for the threat to Grangemouth.

Myth

Scrapping a facility that puts fuel in our cars and plastics for our gadgets goes entirely against the grain of our core modern myth of progress. Oil is the magic nourishment that, when used to feed human ingenuity, delivers a bright new today and an almost impossibly brighter and shinier tomorrow.

Don’t tell us it’s not true! Shutting an oil refinery is tantamount to admitting that God doesn’t love us any more.

We must have sinned. Or rather, since we ourselves still believe deeply in Progress and Man’s Predestined Journey to the Stars, someone else must have sinned.

Hence the immediate, almost unconscious, finger-pointing at the unions. They are every media outlet’s shorthand for Luddite, dog-in-the-manger, anti-progressivism. Why, they are so backward-looking that they don’t want to give up their final salary pensions! (Note that many of the Daily Telegraph readers shaking with fury over this red threat to bonnie Scotland are themselves retired on final salary, index linked pensions).

Taxpayer subsidy

Unless there really is some way of reconfiguring Grangemouth to operate at a profit, any deal to keep it going will probably involve some kind of hidden taxpayer subsidy to the owners. From a social perspective, the benefit to region and country from a subsidy might be greater than the costs of letting the plant close. It would also be a sweet deal for the company and the politicians.

If the plant is ‘saved’ for a few more years of operation, the owners will get public cash to mitigate their losses while the politicians take the credit for keeping it going. If it closes, it will be all the unions’ fault – even though it currently looks as though they will accept the terms of the ‘rescue package’.

Funny isn’t it? The myth of progress is increasingly used to browbeat and scapegoat people into believing that it is their own fault when they have to accept the smelly end of the stick.

And yet the idea persists (especially in media like the BBC) that the future will be wonderful because humans can and will overcome anything reality throws at us, including a self-destructing financial system, insufficient natural resources and a rapidly-destabilising climate.

Well I guess if things don’t work out as promised, we can always find a union to blame it on.

Car-boom!

Yesterday’s Guardian G2 section led with the somewhat self-consciously juvenile word, ‘Vroom!’.

Subtitled ‘Why Britain can’t stop buying new cars‘, the cover story tried to answer why car sales are rising in the UK while stagnating everywhere else in Europe.

It provided a handy platform for assorted industry mouthpieces to congratulate Britons on being clever little consumers. Apparently we are becoming adept at signing personal leases and/or rushing into car dealerships to blow PPI payouts on deposits on car loans.

And to be fair, £69 a month for a brand new Skoda Citigo runaround isn’t a lot more than a his’n’hers iPhone/iPad contract. Assuming of course that you can chop your old car in for the £2,500 deposit.

And to be fairer than fair, the writer did ask some awkward questions. Why are fewer and fewer young people bothering to learn to drive? Why are annual mileages dropping?

Naturally, the industry came back with ready-prepared answers. Young people just need the right kind of ‘marketing’ to turn them back on to car ownership: cue ‘cool’ car ads that are so painful you want to stick needles in your eyes. Mileages are really falling only in London and the south east, because public transport is quite good there and executive-level company car users all use Skype or the phone these days.

To be honest, it all sounded rather defensive. The overall picture painted by the article was that of an industry whose existing customers are happy to use alternatives when they become available while potential new customers are increasingly disinclined, not to mention financially unable, to contemplate buying its products.

Cheap credit and the fact that Britain is not in the euro are behind this mini boom in UK car sales. The article pointed out that carmakers are assiduously pumping production into the UK to try to keep their factories humming as demand in the eurozone collapses.

The big risk to the UK car business is that it is storing up big problems further down the road. Sales are being bought expensively through wafer thin margins, heightened credit risks and discounts that end up depressing second values and thus hurting the all important fleet sector, which makes up half the market.

So the answer to the Guardian’s question appears to be: ‘Because British car buyers are easily-influenced novelty-seekers with an underdeveloped sense of consequences. Rather like four-year-olds.

A much more interesting question, which hopefully the Guardian will get round to investigating, is why so many Europeans have apparently broken themselves of the new car habit?

What do they see that we don’t?

University education: priceless or valueless?

One of the best things I’ve listened to in the past few days was Charles Hugh Smith talking about his new book, The Nearly Free University, on the Resilient Life podcast.

The costs of running universities and attending them have sky-rocketed since 2001, while the outcomes for most graduates are increasingly negative: a mountain of debt and often no conspicuous skills advantage over someone who went out to work at 18.

Hugh Smith addresses what he calls this ‘factory model’ of higher education, which seems finally about to implode under the pressure of its own, well, uselessness.

“In the good old days of the factory model, and I mean both the factory model in education and the factory model of production, you could get a degree in underwater basket weaving – or in my case, philosophy – and then you go work for an insurance company or some white-collar job in which whatever you were supposed to learn they would teach you on the job. So your degree literally was sort of like a stamp on a passport; you were not claiming to know anything of value to that business.

“Well, that worldview and that economy is dying. The idea that you can just show up and an employer is going to lavish a bunch of on-the-job training – that is no longer efficient for the employer. They want somebody that can produce value on Day One. We need to create and teach the value system that is needed in the real economy, and values, of course, are not taught at college at all.”

I can relate to that. Friends’ children are coming out of university with degrees in fashion design, creative writing and modern dance. The ‘lucky’ ones are working full time in the bar and hotel jobs they did at weekends before they went to Uni. Others are simply unemployed.

Given a few more years and several unpaid internships each, all of them will hopefully be in full-time work. But they will be, in their mid to late twenties, only where they would have been if they’d gone straight into jobs when they left school. The only winner was the higher education system.

Seeing my daughter getting swept into her school’s GCSE-A Level-Uni process like a leaf falling into a running gutter, I can see how hard it is for kids to imagine an alternative. Only three out of 50 A-level leavers from her school went into employment this year.

Meanwhile, one of her older cousins (history degree, Oxford) is slowly working his way up from a grunt job in NHS data management – formerly his holiday earner. His girlfriend (biochemistry degree, Oxford) is in teacher training after working for a year as a basic-waged teaching assistant. Between them, they have many tens of thousands of pounds of student loans to repay.

And those were real degree courses at on of the world’s best universities. Think of all the young people plodding through three years of glorified babysitting on courses cobbled together to take advantage of the loan system – sorry, cater for the ‘demand’ for degrees.

Another of my daughter’s cousins, also in his early 20s, has just bought his first house. But then he went into an apprenticeship at 16. Of course, he now has a hefty mortgage but so too, eventually, will the graduates … on top of their student loans.

One can argue that student debt is an investment in your future. Borrow now, earn more later. Charles Hugh Smith disagrees:

“Statistically, half of all recent college graduates have either no job at all or they are severely underemployed. This speaks to an enormous disconnect from the higher education system and the economy that it is supposed to be serving.”

“What is the pay-off for our society of saddling college students with a trillion dollars in debt? A huge study, one of the few that has actually tracked the results of a college education – like, how much do people learn in getting a four-year degree – … found roughly a third of all college graduates had no increase in critical thinking skills.

“Another third had marginal improvements in the kinds of skills that we would consider critical in what I call the emerging economy, the parts of the economy that are actually growing and expanding instead of shrivelling and fading.”

For the moment, the tide is still just about running in favour of the university cartel. But kids are catching on to the worthlessness of degrees that mean nothing to employers.

Hugh Smith proposes a combination of apprentice-style on-the-job skills training for work and employment, combined with online courses and tests to develop critical thinking ability. It’s the kind of fitter, cheaper alternative we need.