Crude populism

Livingstone and Chavez, stirring it:

Ken Livingstone has been criticised for a proposed deal to get cheap Venezuelan oil for London’s buses, in return for consultancy services…
The deal could subsidise Oyster travel cards for the poorest Londoners, Mr Livingstone said.

Fare’s fair, Chavez-style, or oil-for-wonks scandal?

The usual suspects aren’t happy:

But opponents on the London assembly, who want to question the mayor at City Hall today, are unconvinced. Angie Bray, the leader of London’s Tories, dismissed the scheme as a “socialist propaganda fest”.
She said: “Ken and the president of Venezuela should be ashamed of themselves for even contemplating such a proposal. I’m sure the Venezuelans who struggle below the poverty line, many of them critically so, would be shocked at the cynical siphoning off of their main asset to provide one of the world’s most prosperous cities with cheap oil.”
Mike Tuffrey, the leader of the Liberal Democrats in London, said the deal smacked of aid, not trade. “This reduces us to the status of a third-world barter economy. We should be weaning ourselves off fossil fuels, not trying to get them at subsidised prices from Venezuela.”

First, London in general may be one of the richest cities in Europe, but it also contains some of its poorest districts. Fuel poverty is a real and growing concern and, whilst I would dearly like to see a reduced dependence on fossil fuels in general, this should not simply mean debarring the poor from travelling – as the Greens also appear to suggest here.
Second, Mike Tuffrey is adopting the classic Lib Dem pose: confused opportunism. He appears to have little idea what “trade, not aid” means for resource-rich developing countries. Countries rich in natural assets have long suffered from the “resource curse”: under capitalist relations of trade, being a country with great natural wealth generally makes you poorer, not richer.
Part of the reason for this is the so-called “Dutch disease”: if I as, say, Chad (PDF), want to sell you some of my oil, I will do so for dollars on international markets. But if I want to use those dollars in Chad, I need to convert them into francs. Demand for francs pushes their price – the exchange rate – up. Rises in the exchange rate in turn squeeze other exporting sectors of the economy, like agricultural producers and manufacturers, as the prices of their goods internationally rise with the exchange rate. They will be forced to cut domestic costs – that is, wages – or face going out of business.
Unlike the classic Dutch disease, Venezuela has not recently discovered oil. But the skyrocketing price of crude in recent years has had a similar effect on the Venezuelan bolivar, creating great pressure for its appreciation.
One way to avoid this pressure is to avoid the international currency market altogether. A “barter agreement”, such as the one Tuffrey is becoming so sniffy about, is the ideal means to do this: a direct exchange of valuable UK services for valuable Venezuelan products, with no need to introduce debilitating exchange rate pressure.
Compare this to the consequences of insisting that developing countries follow the markets’ diktat. Tories and Lib Dems in London are all but demanding the immiseration of those in Caracas slums.

9 comments
  1. MatGB said:

    I thought that name was familiar. It’s not the first time Tuffrey’s pronounced something stupid, he also decided to call for term limits on the mayoralty, on the “if you can’t beat him, ban him from standing” model.

    I tend to avoid economics discussions, not really my field, but I did think the idea was quite a good one, and payment in kind isn’t a bad form of barter.

    I really dislike the opportunists, but, be honest, they exist in every party, it’s not just the LibDems.

  2. Some random observations:

    1. Bray is right, what Livingston and Chavez are doing is propaganda. Of course it is, they are politicians and that’s what politicians do. If Bray was mayor of London, she’d be doing things for propaganda too — different things no doubt. So her criticism is really just sour grapes.

    2. Barter is inefficient. That’s why money was invented.

    3. Cheap oil is a good deal for London.

    4. Whether this is a good deal for Venezuela, I don’t know. Certainly London is a large, rich, successful city (people in the West often underestimate how successful their societies are, because most of the time everything “just works”). Conceivably London has useful skills it could teach Caracas and other Venezuelan cities.

  3. Barter is inefficient. That’s why money was invented.

    Bit of an over-simplification, surely? In general, it’s true, of course; but if you’ve got something I want, I’ve got something you want, and we agree we’re happy to do a straight swop, that’s considerably more efficient than involving third parties in the transaction as either middlemen or as someone from whom I can buy the money to pay you for what I want, thus enabling you to give me the money straight back in return for what you want.

  4. clampett said:

    Perhaps the boys in caracas care more about political leverage against the ‘war on terrorism’ than about losing a bit of cash on a minor shipment of Oil, so when this arrangement is criticized as propaganda, really, it’s being critical of the British poor/working class’ ability to see thropugh the lies of the domestic English upper classes…so PH is right, sour grapes.

  5. 1. Alternatively, countries experience the resource curse because they’re authoritarian – not because of capitalist relations of trade. Full expropriation of the oil sector is difficult, due to the specific technology/knowledge and access to international markets required. So, the economy is skewed towards oil, because people will invest in the sector without fear of losing the lot. See Stephen Haber’s chapter in this book.

    2. That article you cite doesn’t say London has some of Europe’s poorest districts, merely some of Britain’s. Unless I missed something, that hardly bears comparison with the Italian Mezzogiorno, or Slovakia outside central Bratislava, or plenty others.

    3. Having said that, Chavez is the elected leader of Venezuela, so he’s free to deal with whomever he likes. I can’t see why a supposed “liberal” and a Tory should object to him doing business in a free market – the oil’s certainly better swapped for consultants than pissed away on Kalashnikovs for FARC or trips to Iran. As Phil says, it’s propaganda, but that in itself doesn’t tell us whether it’s a good idea or not. And using the oil to fund free travel for poor Londoners seems unimpeachable, too.

  6. Omri said:

    Given that those “valuable UK services” include installation of CCTV systems, you can color me skeptical.

  7. Omri said:

    What Chavez could be doing to unload petrodollars and stabilize the Bolivar is to fund public works projects. I hear the highways around Caracs are in bad shape. And the hospitals in the hinterlands are deteriorating. And the favelas could always use more paving, sewer lines, and the like.

    And Bechtel is bidding…

  8. Barter is an excellent system of exchange in places that hold little store by the value of paper money. In some of the more isolated Pennine villages of my era it was common for locals to offer their daughters in exchange for a monagram of Prince Albert from travelling tinkers. Who can say that was any worse than handing over a couple of pennies for a Ipeapod or Blueberry communications device as is common in the present day ?

    Good luck to Dr Livingston and King Hugo of the Chavs with their swapsies arrangement.

  9. robinhio said:

    I don’t think this is propaganda it’s just the way Chavez does business.

    As with the Cuban doctors for oil.

    Cheap heating oil for the American poor, now that’s propaganda.

    You’re not gonna hear me complaining though.