A little lesson in how this capitalist dance works

Much huffing and puffing over how the record oil company profits aren’t being invested in green energy projects. Instead it looks like all that cash will just be handed to shareholders:

The chief financial officer of the oil and gas company BP, Murray Auchincloss, told investors this week: “It’s possible that we’re getting more cash than we know what to do with.”

Yes, this is how capitalism works. Some past investments do produce gushers of cash. The organisations set up to produce those rivers of moolah may well not be optimised to invest in the next round of profit making. There’s no particular reason why a company - BP say - which is jam-packed full of the knowledge of how to drill for hydrocarbons knows how to place solar panels in a field. In fact, we’ve already tested that one, BP used to be the world’s largest solar panel and power company and it wasn’t very good at being so.

The varied campaigners are making a pair of mistakes. The first is the assumption that a company in the energy business should shift as the energy business does. But that’s to assume that Airbus should be making cars, Ford bicycles and Rover trains - they’re all transport, right?

The second is to assume that we’ve not already got a system to deal with these shifts. If BP has more cash than it knows what to do with then it sends it off back to its owners, the shareholders - dividends and stock buybacks. This money does not then disappear for there are only two things anyone can do with money, save it or spend it. There’s some minimal amount of savings that goes under the mattress, everything else gets invested. If the shareholders then spend their extra cash then that save/spend decision is just one more step along the money chain.

Anything handed out as a share of profits by a company gets either spent or invested that is. So, the decision of what to invest in is just being made by a different group of people. Instead of that corporate management who haven’t a clue - they’ve just said they’ve more than they know what to do with - the decision is made by individual investors. Who may well send the money off to SSE to build windmills, or Lynas to mine the metals to build the magnets for windmills, or invest directly in a solar panel farm, or insulate some housing or…

Dividends and corporate payouts move those profits from people who have no clue what to do with them to those who do have several clues that is. Which is indeed how the capitalist dance works. The investment is happening of course, as we can see in the investment numbers themselves, in the portion of energy being generated by the new technologies, in any aerial photograph of the country. Sahreholders receive the profits of past investments and, largely enough, use them to finance the next generation.

Of course, there is that alternative route, the one being clamoured for, which is that the profits be taxed away, the shareholders receive and redeploy less and government decides where the cash should go. We can’t see it working to be honest, we’re deeply unsure that politicians directing past fossil fuel profits into increasing the number of grievance studies graduates is really going to do all that much to beat climate change.