The Fourth Industrial Revolution and the Future of Warfare

We will look back on the pandemic as a punctuation point in history. Perhaps a new paragraph, a new chapter or even a new book. I’ve been touching on the implications of 4IR for a while, and 2023 has been the year that AI became “real” for a lot of people.

In 2016 I wrote this piece: https://bestemnetwork.com/2016/02/09/energy-security-and-geopolitics/ which talked about the likelihood of instability between nation states in the battle for the oil markets. Energy transition has changed the calculus and so has the 4th industrial revolution. The world has, indeed, become less stable.

One of the areas perhaps not often openly discussed in the 4th industrial revolution is the nature of warfare. As we push the boundaries of technology, the way nations prepare for, initiate, and engage in conflicts is evolving. Here are some things to consider.

1. Automated and AI-Driven Warfare:

  • Drones and Robotics: Drones are no longer just eyes in the sky. With advancements in AI, they have transformed into precise offensive weapons, capable of carrying out strikes with minimal human intervention.
  • Autonomous Military Robots: Ground-based robots could potentially replace foot soldiers in certain scenarios, minimizing human casualties. Moreover, underwater drones can conduct sabotage or reconnaissance missions without risking human divers.

2. Cyber Warfare:

  • The 4IR has seen an increase in state-sponsored cyberattacks. These can target crucial infrastructure like power grids, water supplies, and communication networks. A well-timed cyberattack can cripple a nation, making traditional military engagements look outdated.
  • Information warfare will also be at the forefront, with nations battling to control narratives, spread disinformation, and sway public opinion.

3. Enhanced Soldiers:

  • The combination of biotechnology, nanotechnology, and AI could give rise to super-soldiers. Whether it’s through exoskeletons that provide unparalleled strength or through drugs and enhancements that reduce the need for sleep and boost physical and cognitive abilities, the very nature of the ‘soldier’ is being redefined.

4. Space – The New Frontier:

  • As nations look to the stars, space becomes the new domain for superiority. Satellite warfare, where nations could blind or mislead others by taking out or hacking their satellites, will be paramount for control.

5. A New Nuclear Age:

  • With the rise of AI and automation, there’s a potential risk of ‘dead-hand’ systems. These are AI-driven systems that, once activated, can autonomously decide to launch nuclear weapons based on data inputs. While designed as a last-resort deterrent, they pose significant risk given the lack of human judgment in the final decision.

6. Asymmetric Warfare and Non-state Actors:

  • With 4IR technologies becoming more accessible, non-state actors and guerrilla groups could gain access to disruptive tools. This means that smaller groups could potentially inflict significant damage, levelling the playing field against more significant, established military powers.

7. Ethical and Moral Implications:

  • As machines start making more decisions, nations will grapple with moral and ethical dilemmas. How do we program ethics into our machines? If an AI-driven drone strikes a civilian target, who is held responsible? These questions demand global attention and consensus.

Conclusion:


The Fourth Industrial Revolution is reshaping warfare, just as it is transforming industries. While many of these changes can lead to reduced human casualties and precise warfare, they also introduce unpredictability, especially when machines are granted decision-making powers. As we stand at the cusp of this new era, it is essential for nations and international bodies to collaborate and establish norms and conventions. The future of warfare is not just about superior technology; it’s about harnessing that technology responsibly.

What are we going to do about AI and what’s it going to do about us? Workers and automation: Recommendations (2/2)

You may have noticed that the Script Writers Union and the Screen Actors’ guild of America are on strike [1]. Part of this is their fear that movie producers will be able to replace both with generative AI and Avatars. We used to assume that AI would only take away the repetitive jobs, leading to the value of human endeavour being directed towards the arts and other creative pursuits.

Well, it seems the poets, artists, musicians and videographers are all getting worried about their jobs now too as AI starts to sweep arts competitions [2] and make music in their name [3]. It feels similar to the time that the RCA A&R man looked suspiciously at Spotify before being handed his P45.  

So unlike the lawyers in the previous post who fear that they will no longer be able to “exploit” their juniors to direct concentrated wealth to the partners, the actors and screenwriters fear the opposite – that producers will be able to capture the value because their unique-style and star status lets them earn more than their peers. Two opposite sides of the same coin.

Will this mean we see actors’ sometimes enormous fees also follow a race-to-the-bottom cost curve as those who license their likeness [4] start to suck up the jobs by undercutting the competition (box-office stardom as a passive income stream, anyone)?  We are also seeing large companies like Google [5], Microsoft [6] and Adobe [7] incorporate elements of generative AI into the tools they release. These are no longer esoteric features embedded in the tools used by the professionals who sell creative output; a process that we might call creative-disintermediation. It will do for your graphic designer what Amazon did for your book shop. 

What can you do about this? Well you can’t stop it. Trying will be a bit of a King Canute moment we think. So: 

– Many businesses should try to use GenAI tools to cut costs rapidly in the creation of content. This could include adding more creative content and personal touches to customer interactions; 

– Don’t rely on overcharging for repetitive work. This is likely to be a losing proposition going forward and you should expect juniors undertaking repeatable processes to find ways to automate them (extra warning: here be startups); 

– The apprenticeship model and the assumptions of the elapsed period to become “time served” may change. This might lead to difficulty in hiring junior staff and large lateral career moves that are currently impossible within a normal working life-time; 

– Until AI is “proven in battle” there will be a risk-mitigation premium attached to reassurance from trusted advisors – after all, investment banking still charges a premium; and

– The power of human networks, families, friends and fashionistas will still drive the distribution of power (and wealth) in non-economically rational ways.

[1] https://www.theguardian.com/culture/2023/jul/15/actors-writer-strike-stop-hollywood-what-movies-tv

[2] https://www.nytimes.com/2022/09/02/technology/ai-artificial-intelligence-artists.html

[3] AllttA – Savages (YouTube)

[4] https://uk.news.yahoo.com/michael-douglas-plans-license-name-121838765.html

[5] https://workspace.google.com/solutions/ai/

[6] https://blogs.microsoft.com/blog/2023/03/16/introducing-microsoft-365-copilot-your-copilot-for-work/

[7] https://www.adobe.com/uk/sensei/generative-ai.html

What are we going to do about AI and what’s it going to do about us? Workers and automation (1/2)

With great power comes great unemployment. Or at least, that’s the fear that many have, especially with every new report from a bank [1] or tech company [2], making headlines for predicting the hundreds of millions of jobs that will be lost to automation.

During discussion, our members had mixed views. First, they concluded that the ability of AI to codify skills and then transmit that information far and wide would mean that “know-how” would be rapidly distributed across the globe. But crucially, this isn’t just the spread of familiar ‘know-how’ of the sort we’ve come to use every day, like books, courses and how-to YouTube videos, but also ’know-do’. That might mean packaging years of deep human expertise into an algorithm and then throwing the software into the field to help humans make difficult decisions, or sometimes making decisions for them.

Interpreting patient CT scans is a perfect example. Research teams across the world [3,4,5] are helping to develop algorithms that can spot the signs of cancer more accurately, more consistently and earlier than doctors and other healthcare practitioners working unassisted. And this means earlier, more targeted and effective treatments can be provided, improving patient outcomes and making better use of hospital resources, whilst general-purpose medical assistants accepting mixed data inputs are not far behind [6].

This is great news for both advanced hospitals in developed countries as well as less fortunate areas. Advances like these help to rapidly level the playing field from a healthcare standpoint, increase overall capacity and fill skills gaps in the workforce (and do them faster and more accurately), and ultimately drive down costs.

While this will sound like be good news if you are sick, or buying services, it’s rather less good if you were the person that used to do the job. There is a well-rehearsed argument that this will free up people from menial tasks and provide them with more fulfilling roles. Inter-generationally this might be true, but if you’re a 50 year old radiologist you’re probably a bit miffed at the prospect.

The network members also pointed out that there is a succession and apprenticeship problem. Many of the skilled workers at the pinnacle of their careers – the ones freed up from the menial tasks mentioned above – got that way by working their way up through a system. The repetitive work forms the basis of the training. Not only that, there will be a problem with the vesting process in, say, a legal firm. The monetary benefits of employing large numbers of trainees at low cost and charging out their time at full rates (so you can reap the profit) may be a model open to destructive competitive forces unleashed by AI.

Meaning, we may start to see the pyramids crumble.

Sources

[1] https://www.goldmansachs.com/intelligence/pages/generative-ai-could-raise-global-gdp-by-7-percent.html 

[2] https://arxiv.org/abs/2303.10130 

[3] https://www.royalmarsden.nhs.uk/news-and-events/news/ai-could-help-doctors-diagnose-lung-cancer-earlier

[4] https://ascopubs.org/doi/full/10.1200/JCO.22.01345

[5] https://www.fiercebiotech.com/medtech/google-s-cancer-spotting-ai-outperforms-radiologists-reading-lung-ct-scans 

[6] https://www.linkedin.com/posts/vivek-natarajan-a3670118_medicine-is-a-multimodal-discipline-absolutely-activity-7090202293710557184-Vtie/

What are we going to do about AI and what’s it going to do about us?

What are we going to do about AI?  It’s all over the press and I wouldn’t be surprised if ChatGPT is named the New York Times person of the year. ChatGPT, however, is far more modest. When asked to predict who might be named, it doesn’t speculate much, and instead reminds me of Capt. Kirk asking Dr. Spok a cheeky question about kissing Lt. Uhura: 

“As an AI language model, I don’t have the ability to predict or determine who will be named the New York Times Person of the Year for 2023 or any other year. The selection process for the Person of the Year is conducted by the editorial staff of the New York Times, and it typically recognizes individuals or groups who have had a significant impact, influence, or prominence during the year.

While AI and technology have the potential to shape and influence society in various ways, it is difficult to speculate on the specific likelihood of ChatGPT being chosen as the New York Times Person of the Year. Factors such as societal impact, cultural relevance, and the achievements of individuals or groups involved in AI development and application would likely be considered in the selection process. Ultimately, it would be up to the New York Times to decide who they believe deserves the title for that particular year.” 

Despite me trying to ignore AI and thinking that it was all just a bit of a new name for regression analysis, I have been quite shocked at how clever the generative results appear to be. So in Q2, after finally accepting we might be part of the ‘99% of people who are using ChatGPT all wrong’, we decided to ask a number of members of the Bestem Network to consider what the implications of AI could be and what the heck we can do to prepare.  The conclusion was that we should consider five areas in the immediate future: 

  • The impact of AI on industries and their workers; 
  • The interplay between climate change and AI; 
  • The implications for cybersecurity as AI becomes more important;  
  • AI and the battle for truth; and 
  • The impact of AI on wider society. 

Over the next few weeks we will publish four posts summarising our findings. Without spoiling the surprise, whilst humanity has faced plenty of disruptive phase shifts in the past, from ice ages to plagues and empires collapsing, it looks increasingly like this one could determine our long-term future. And to make it work, we’re also going to need to invent a whole new level of international collaboration, one that makes our existing nuclear proliferation treaties look amateur. 

Note from the future

Succession, Transition, Resilience, Revolution

At the end of 2022 members of the Bestem Network gathered in London to discuss and debate what we expected from the year ahead. The discussion was seeded with three topics:

  • The 4th Industrial revolution will happen as a consequence of transitioning towards a low carbon economy, do you agree?
  • How will we balance the resilience needed to survive the short-term disruptions (inflation, energy scarcity, supply chain, political upheaval) with innovation and roll-out of the transitions that will be required?
  • What steps are you taking to enable the next generation of leaders to step up and take control, drive their agenda while contributing your wisdom but not getting in the way?

Over the holidays Dan and I wrote up the notes from the discussion and shared them with the network, they are now available for general release. Please read and enjoy.

https://bestemnetwor.hubspotpagebuilder.com/note-from-the-future-2022c

Your next career will be about asking questions

The fourth industrial revolution is comming quickly. I’ve been playing with openAI (more later) and have asked it’s ChatGPT bot a few questions. I also asked it’s DALL-E to generate the image ont the top of this page. 80% of this article is generated by AI.

I asked the AI questions, and it provided the answers. See what you think. In the future I suspect the role of the human is to know which question matters most.

Try these your self at: https://chat.openai.com/chat and https://labs.openai.com/

Write 50 words on generative AI

Generative AI is a type of artificial intelligence that involves the use of machine learning algorithms to generate new data that is similar to a given input. This can be used to create realistic images, videos, audio, and other types of media. Generative AI can be trained on large amounts of data and can produce high-quality outputs that are difficult to distinguish from human-generated content. Some common applications of generative AI include image and video synthesis, natural language generation, and audio generation.

write 100 words on the history and progress of open.ai

OpenAI is a nonprofit research organization founded in 2015 by Elon Musk, Sam Altman, and other leading figures in the tech industry. The goal of OpenAI is to advance the field of artificial intelligence and to promote the development of AI that is safe, transparent, and beneficial to society. Since its inception, OpenAI has made significant progress in the field of AI, including the development of advanced machine learning algorithms and the creation of large-scale language and vision models. In 2018, OpenAI launched Dactyl, a robot hand that was able to solve a Rubik’s cube with human-like dexterity. More recently, OpenAI has been focused on developing AI technologies that can operate in complex and dynamic environments, such as video games and robotics. Overall, OpenAI has established itself as a leading player in the field of AI research and development

Write 50 words on how Regenerative AI will affect the 4th industrial revolution and employment in white collar roles

The fourth industrial revolution, also known as Industry 4.0, is characterized by the use of advanced technologies such as artificial intelligence, the Internet of Things, and robotics. Generative AI is expected to play a significant role in this revolution, potentially affecting the demand for white collar jobs. Some experts predict that generative AI will automate many tasks currently performed by humans, leading to job displacement in some industries. However, it is also possible that generative AI will create new job opportunities in fields such as data analysis and machine learning. Overall, the impact of generative AI on employment in white collar roles is likely to be complex and multifaceted.

write 200 words on the potential economic benefits and pitfalls of the 4th industrial revolution

The fourth industrial revolution, also known as Industry 4.0, is characterized by the use of advanced technologies such as artificial intelligence, the Internet of Things, and robotics. These technologies have the potential to bring significant economic benefits, including increased productivity, efficiency, and competitiveness. For example, the use of AI and automation can help to reduce the time and cost of certain tasks, allowing businesses to operate more efficiently and effectively. Additionally, Industry 4.0 technologies can enable the creation of new products and services, leading to the development of new markets and revenue streams.

However, the fourth industrial revolution also presents potential pitfalls and challenges. One of the main concerns is the potential for job displacement and unemployment as a result of automation. While some experts predict that Industry 4.0 technologies will create new job opportunities, others argue that many jobs will be replaced by machines, leading to a decrease in demand for labor. This could have significant consequences for workers, including income inequality and social unrest. Additionally, the rapid pace of technological change associated with Industry 4.0 may create challenges for businesses and governments, who will need to adapt quickly in order to remain competitive. Overall, the economic impact of the fourth industrial revolution is likely to be complex and multifaceted.

write 200 words on the intersection of energy transition on the 4th industrial revolution

The intersection of energy transition and the fourth industrial revolution, also known as Industry 4.0, is a complex and evolving area of study. Energy transition refers to the process of shifting from the use of fossil fuels to more sustainable forms of energy, such as renewable sources like solar and wind power. Industry 4.0, on the other hand, involves the use of advanced technologies such as artificial intelligence, the Internet of Things, and robotics to drive innovation and economic growth.

The intersection of these two trends presents both opportunities and challenges. On the one hand, Industry 4.0 technologies can help to accelerate the transition to renewable energy by enabling the development of new energy storage systems, smart grids, and other technologies. For example, the use of AI and machine learning can help to optimize the operation of renewable energy systems, making them more efficient and cost-effective. Additionally, Industry 4.0 technologies can enable the creation of new products and services related to renewable energy, leading to the development of new markets and revenue streams.

However, the transition to renewable energy also poses challenges for Industry 4.0. One of the main challenges is the need for large-scale infrastructure investments to support the transition, which may require significant financial resources. Additionally, the transition to renewable energy may disrupt existing energy markets and business models, potentially leading to job losses and other economic impacts. Finally, the rapid pace of technological change associated with Industry 4.0 may create challenges for policymakers and regulators, who will need to balance the need for innovation with the need for stability and reliability in the energy sector. Overall, the intersection of energy transition and Industry 4.0 is a complex and dynamic area that will require careful planning and coordination in order to maximize the benefits and minimize the risks.

Write 100 words comparing the importance of asking the right question with researching the answer

Asking the right question is just as important, if not more important, than researching the answer. This is because a well-formed question can help to clarify the issue at hand and provide a clear direction for the research. On the other hand, a poorly-formed question can lead to confusion and ineffective research. Additionally, asking the right question can help to ensure that the research is relevant and useful. For example, a question that is too broad or too narrow may not provide the information that is needed to address the problem. Asking the right question can also help to save time and resources by focusing the research on the most important aspects of the issue. In short, asking the right question is an essential first step in any research process.

will careers of the future focus on asking the right question or doing repetitive work?

It is difficult to predict the exact nature of careers in the future, as it will depend on many factors such as technological advancements, economic conditions, and societal trends. However, it is likely that careers of the future will focus more on asking the right questions and less on repetitive work. This is because the widespread adoption of artificial intelligence and automation is expected to automate many tasks that are currently performed by humans, such as data entry and routine data analysis. As a result, careers of the future may focus more on tasks that require higher levels of creativity, problem-solving, and critical thinking. These skills are often associated with the ability to ask the right questions and to think outside the box. Additionally, the rapid pace of technological change is likely to create new job opportunities in fields such as data science, machine learning, and artificial intelligence, which may require individuals to be adept at asking the right questions in order to drive innovation and progress.

Framing Energy Transition

I’m dissatisfied with the term Energy Transition. Everyone’s doing it, but they’re all doing something different. So, I’ve been working on a framework for describing what’s going on.

Much of my network is concerned with Oil and Gas and there is this term “Energy Transition” banded about. Which it seems they define as –

“What we are doing now won’t work in the future. Let’s find ways to apply our skills to ANYTHING new and hey-presto, that must be energy transition”

As a definition it is not helpful. So I am looking for a different way of classifying things. This is what I have so far.

Meta Industries

Firstly, I took the word Energy and examined it. That led me to realise that it is really one of a few “meta-industries” that provide the fundamental requirements for our world. Energy being one. Others include things such as Shelter, Food and, Transport. Each of these meta-industries have alternative outputs which can be used to provide their utility. For instance, Energy, output can be fulfilled by Oil, Gas, Coal, Electricity, etc. You get the picture. It’s the same for the others meta-industries.

Meta Industries in transition

Each Meta industry has alternative outputs which are, somewhat, interchangeable and can achieve the primary goal of supply.

Each of these alternatives outputs have a supply chain of interconnected industries that will be impacted by a switch between alternatives. Such a switch will also require modification of consumption activities. i.e. switching more of the Meta Industry “Energy” output from Oil to Electricity requires electric vehicles, which require batteries etc.

I think talking about working in “Energy Transition” is almost meaningless. Energy Transition is an outcome created by other activities. These activities are things you can work on. Energy Transition is not a thing in itself but a description of what happened. It would be the equivalent of saying you work in “Energy Profitability”.

Working Up, Working Down

This thinking has led me to a framework around each alternative supply chain (working down) and from each “traditional” industry (working up).

To explain, the Oil Industry is a component of the “Energy” supply chain, but is also a component of the “Fertiliser” supply chain which is part a “Food” Meta Industry output alternative.

It is difficult to analyse the “oil industry” in isolation as it gets caught up in all it’s supply chains from energy to chemicals to road construction to transportation. I propose that we can simplify the analysis by looking down from a fundamental Energy Meta Industry.

There are 4 Industry groups impacted in a transition between alternative outputs of a Meta Industry. E.g. the switch from Oil to Electricity.

  • A: Industries that will cease to be needed
  • B: Industries that mitigate the impact of (A) industries until they do
  • C: Industries that will replace them
  • D: Industries that do not need to change at all

Industries that die and ones that help them pass peacfully

The (A) industries are unwelcome but necessary for a while. The goal should be to make them obsolete as soon as possible.

This removal creates economic opportunity:

  • To reduce the environmental impact until they do (for instance by reducing unnecessary emissions)
  • As facilities are removed from service, activities for dismantling the infrastructure will flourish
  • Professional services for financing, operating, and advising in this space.

The reducing capacity of (A) industries will lead to reduced scale economies and higher cost of capital.

Temporary mitigating industries emerge

The (B) industries are temporary, they will somehow clean up the unavoidable impact that (A) industries have until they are closed down. Carbon scrubbers that sort of thing.

The doom-spiral for doomed industries

Even if they are doomed, (A) industry projects will still be required to be around for a time. But they will also need to execute unpopular projects with loads of political risk. They will have higher cost of capital. They will carry increased costs from compliance, regulatory charges, and penalties. They will need to pay for a new input cost – (B) industries. They will have higher operational costs. They will find it hard to recruit and retain staff so labour costs will increase. These increased costs will lead to increased output prices. This will cause further reduction in demand for their product. Scale economies will kick in for competitive substitutes. It will become a downward spiral for the old, and an upward whirlwind for the new.

New industries emerge as innovation accelerates

The (C) industries are the up and coming replacements. They will likely be easier to finance, enjoy tax breaks and subsidies. They will also benefit from scale-up, learning economies and rapid innovation. They are likely to employ modern technology such as autonomous vehicles, AI, 3D printing and big data from the start. They will be the foundation of the 4th industrial revolution.

Some things stay the same

The (D) industries are the ones with very little impact on the environment that don’t need to change in this Meta Supply chain. But may be impacted by due to interference from other Meta Industry transitions.

Meta Industries need to be analysed seperately

This lens applies to all the Meta Industries, and can help disentangle the analysis.

Of course there are interconnected implications, because if the Oil Industry is a type (A) industry for energy, it may be type (D) for, say, fertiliser manufacturing. So even if it is eliminated from the Energy Meta Industry, it may not be from the Food one. But the implications of the changing cost of production may have interesting implications for fertiliser pricing and availability.

Two brand new Meta Industries

On top of this there are two more new Meta Industries. These meta industries don’t seem to function well with our current rules, regulations, incentives and rewards. To get them to function we’ll need some changes to the economic rules of the game.

Meta Industry 1: Coping with Climate Change. As sea levels rise and storms increase there will be activities required to deal with this. From insurance, to design, to retro-fit conversions, to disaster recovery.  Meta Industry Output is “resilience”.

Meta Industry 2: Cleaning the biosphere. There are technologies being worked on that can remove harmful gasses from the air, can rehabilitate rain forests, rewild habitats etc.  Meta Industry Output is “Biosphere Maintenance”

The problem with these two Meta industries is that it’s not clear who would pay. In an individualist capitalist society it is in no one person’s interest to pay for this, but we will all benefit from it if it occurs. We have moved away from socialist policies for the common good for a long time, but maybe these industries will require us to return to them – and on a global scale.

We must act together or not at all

Climate saving behaviour is binary and it’s global. We’re either all in, or all out. You cannot get off the bus or sit this one out.

As a species we have been very good at creating multiple view points on many topics. Each side convinced that they are right. History being written by the victors and the untrodden path left shrouded in what-ifs.

With the Internet we have “culture wars” where no choice is made but factions live side by side (with various degrees of friction) and multiple opinions matter.

While there are a few points of view on climate change, the science seems to be clear. But then not everyone believes in science. Most engineers believe in science. But not all the ones I know choose to believe climate scientists. They explain to me (with no data) that forces bigger than us must be doing it (volcanoes, solar weather etc.).

Many don’t believe in religion. Whether they see the irony in being scientific, rejecting religion as hocus pocus but then assigning climate change to a “force bigger than us that we can’t understand” I’m not sure.

We cannot have co-existing points of view on climate and succeed. We, as a species are either for cleaning up our act, or we are not. There can be no compromise. To be successful with a path of modifying the atmosphere the vast majority of the world will need to act. It is not a personal choice, it is a collective one.

The world seems to be increasingly insisting that we need to clean up our act. Whether “right” or “wrong” does not matter, it looks like it is happening. There will be a battle for public opinion but will not be national. It will be global.

Will Peace Keeping Forces, may become environmental enforcers working at the behest of the UN, the World Bank, the IMF, WHO or goodness knows? Perhaps the IPCC will mobilise an army to takeover polluting plants and shut them down.

I’ve been a banging the drum for a technology led 4th industrial revolution for years, but I now feel we will have a technologically enabled, climate led one.

The implications of technologies such as AI, Autonomous Vehicles, Remote Sensing, Big Data etc. means that the outcomes will be similar to those I’ve written about before but they will be a by-product. I’ve realised the optimisation function has changed, or it was always this and I’ve just woken up to it.

Labour party announces national energy

https://www.bbc.co.uk/news/uk-politics-63046067

Well, perhaps they read last week’s blog. But judging by the analysis they appear to have done they seem to have done their own homework. But glad they agree with the point of view:

Should we nationalise oil and gas?

Though they did it with Electricity. I wrote this in a LinkedIn post on Monday

UK Electricity is priced at the marginal production cost. This is set by the price of gas. Recently this has meant that producers who use wind or solar have had no increase of costs but a large increase in sales price. This has led to large profits.

Some countries chose to place a windfall tax and distribute the proceeds to support consumer bills. The UK Government has chosen to support the profits by borrowing to subsidise consumers to help them pay the bill. Though there are likely to be lots of increases and difficulty paying in anycase.

The profits remain with the companies. Over 50% of offshore wind generation in the UK is owned by foreign state-owned companies. The UK is borrowing money (which will be paid back from future taxes) in order to underpin the profits of foreign states.

The other big beneficiary is the British Royal Familly. The crown estate owns and rents the sea bed out to 12 NM in return for a share of profits.

The monarchy, and the wealthy, also own large tracts of land which are similarly attracting rents from onshore turbines.

Coupled with Friday’s hood-robin of a budget annoucement do you think that political pressure for nationalisation will increase here?


https://www.theguardian.com/commentisfree/2022/sep/24/uk-energy-system-state-coffers-britain-british-public

https://www.theguardian.com/uk-news/2022/sep/18/windfarm-windfall-set-to-spark-debate-about-funding-of-uk-monarchy

https://www.nytimes.com/2019/04/19/world/europe/england-land-inequality.html

Should we nationalise oil and gas?

6 Years ago, I touched on the UK boom years from 1979 and how much of that was financed by selling state industries and taxing oil and gas. It also discussed the reduction in tax revenues and the power of private money to distort local markets that has arisen lately. https://bestemnetwork.com/2016/02/02/schumpters-cayman-island-holiday/.

Today we are in a world of record gas price rises with electricity being sold at the marginal rate of production – which is determined by gas prices. This has led to massive state interventions in the energy markets of Europe. One approach is to tax the super-profits of non-gas electricity producers and use the money raised to distribute to the poor to help with their bills (French model) and another is load up on borrowed money and distribute it to power companies and the general population through bill subsidies and caps taking no regard to income or usage (British Model). The British model leads to borrowing almost 2x the money required for the furlough scheme. They are heading for borrowing levels (104% of GDP) not seen since the end of the Second World War.

I wrote about tax systems and wealth distribution in regard to the 4th Industrial Revolution here: https://bestemnetwork.com/2021/01/08/part-2-work-trade-taxes-and-government/

It is apparent to me that political tensions are mounting around the issue of private ownership of essential services. These include things such as education, health, rail, water, and power. 

The movement towards cooling the planet will require global co-operation. After the second world war trans-national institutions such as the Nato, the IMF and the World Bank were set up to ensure that we did not recreate the problems that led to the hyper-inflation in Germany of the 30’s and the Great Depression that enabled dictators to flourish – this eventually led to global conflict. Maybe access to essential services should be controlled this way in the future?

Thought Experiment

Consider this if you will. It is only a thought experiment.

Neoliberal markets seem to be failing to create public good as witnessed by the electricity suppliers’ bumper profits and freezing grannies who can’t afford to eat.

Water companies continue to pump raw sewage into the sea while taking money without any real-choice from households and distributing it to their foreign owners as dividends.

Profit seeking behaviour can lead to bad outcomes for the public if it is used to withhold goods and services essential to life and when poor behaviour towards our shared environment is rewarded.

In these situations the customer essentially has no choice but to pay. To me this sounds a lot like a tax, but where the benefit does not go to the citizens, and the “tax payer” has no control over operations whose side-effect is unwelcome.

If we are to reduce emissions, perhaps we might need to treat Oil and Gas as a controlled substance like say plutonium, or asbestos. I have been disappointed that some of the oil executives I speak to don’t really want to reduce unnecessary emissions – even when doing so would generate positive cash flow from saved fuel gas. They just don’t see it as a priority when their time can be spent elsewhere for more profits.

Perhaps the profit motive should be removed?

We also have a transition problem to deal with. We will need to develop new oil and gas fields, but we also want to shut them down as quickly as they can be replaced. That’s going to lead to some expensive risk capital and an inevitable rise in prices if the “free” market is put in charge.

One solution to capital availability and the required policy volte-face (to switch from building to shutting down capacity) might be re-nationalisation of assets. Operators can be paid a service fee to produce them.

Perhaps it won’t be a nationalisation but a super nationalisation (internationlisation? globalisation?). Setting up an institute like the IMF to control all global oil and gas operations, control the product prices and set consumption quotas to ration usage. Perhaps that might be a new role for OPEC to regulate and license consumption rather than regulating production quotas to maintain the price.

Let’s see how the political winds blow, but I feel the limits of free markets are likely to be tested when it comes to Oil and Gas.

If you have time, check out this post on energy security – it’s good to remember where we came from. https://bestemnetwork.com/2016/02/09/energy-security-and-geopolitics/