With a neoliberal economic approach, the government steps in when the market fails and public interests are at stake. The underlying hypothesis is that smart, innovative market players perform better than clueless bureaucratic governments. Imagine being a civil servant! Fortunately for them, in a famous book, Mazzucato proved that almost all modern technological breakthroughs are attributable to smart, innovative governments.
That said, she observed that governments hardly actively participate in the commercialization of these breakthroughs. Consequently, clever entrepreneurs run off with these ideas and get rich. Cruising on their superyachts, they subsequently confirm the view of the general public that the government is indeed a bit stupid. Rather painful.
Today, many nations are acting in the spirit of Mazzucato. They not only subsidize technological developments but also participate in the commercialization of these through state-owned enterprises or by other means. Well-known Scandinavian examples are Vattenfall and Oersted. These state-owned companies not only work on the energy transition at home but also monetize their knowledge and skills through their activities abroad.
Market forces
Whether on the left or the right, Dutch society still thinks rigidly along neoliberal lines. Take energy conservation. In line with the neoliberal view, government authorities do not undertake the work themselves, nor do they instruct the grid operators to support citizens and companies to conserve energy. Instead, it levies energy taxes and distributes subsidies. The rationale underpinning this is that the market will automatically provide energy-efficient homes and businesses. If not, taxes and subsidies are then raised. Seldom is there so much unanimity in the Dutch House of Representatives on this mindset.
That half of all Dutch people are unable to insulate their (rented) home at all is seen as their own fault. The same goes for subsidies, which in practice mainly end up benefiting the happy few. As you can see, the neoliberal world order is not for wimps. The callousness on social media towards fellow citizens in poorly insulated houses speaks volumes. Things can also be done differently. The UK has a progressive transition policy, but electricity and gas are subject to a low VAT rate, and energy taxes are virtually non-existent.
By the same token, the government wants to leave large-scale production of hydrogen entirely to foreign parties,”
Martien Visser
According to the neoliberal world view, you should privatize as many activities as possible. The Netherlands does this with gusto, and preferably to foreign parties, as it turns out. For example, Amsterdam recently sold its waste company to Chinese investors. Prior to that, the Netherlands sold its three major energy companies to foreign parties. As a matter of fact, ‘our’ offshore wind farms are also in foreign hands, while tenders for new offshore wind farms are structured in such a way that only foreign parties are eligible.
The government also wants to entrust large-scale production of hydrogen entirely to foreign parties. Dutch public companies are effectively ruled out, even as minority shareholders, and indeed the Netherlands no longer has any private energy companies that are large enough. Now, there is of course nothing wrong with foreign owners, but it does complicate things if you are seeking something from a company.
Market failures
Neoliberal theory decrees that a government will only intervene when the market fails. But when does a market failure actually occur? Take the current gas crisis. Since 2010, dependence on Russia has increased year on year. The Netherlands also decided to close its own gas supply from Groningen. In July 2021, the gas company Gasunie warned that the gas storage facilities were scarcely being refilled. Two months later, the gas price shot up 3 times higher than usual.
In December, the price was 5 times higher and just before Christmas, it was even 10 times higher. Now war has broken out and we are shivering in our homes. It seems to me that the market is failing quite substantially. But as recently as November 1, the Dutch Minister of Economic Affairs wrote that the gas market was functioning just fine and no action was needed. This week saw a second letter outlining the situation and a few resolutions aimed at fixing it, but again, no concrete action has been taken.
Market failure is an insidious process. Something can always be thought up that makes the market deserve a second, third, or even fourth chance. This is very tempting for a government because change leads to a lot of hassles and also costs both manpower and time. A company can quickly change course if that is what is needed is the idea.
In Sweden, state-owned Vattenfall would in such cases immediately arrange to keep the storage tanks filled. In the Netherlands, this is impossible to do as far its gas storage facilities are concerned, because they are privately owned, and so this needs to be regulated through changes in laws and legislation. The government, however, operates in a myriad of rules, procedures, and competent authorities, and any changes take an enormous amount of time. This reinforces, consciously or unconsciously, the tendency to procrastinate. After all, why make things difficult as long as there is still a glimmer of hope that the market will solve the problem?
District-oriented approach
What does not work in crisis situations definitely applies in more normal circumstances as well. Take the by now ill-fated agreements in the Climate Accord concerning geothermal energy and green gas, the deteriorating situation in the electricity market, the dysfunctional heat market, the grids in their current state, and the district-oriented approach.
As long as there is talk of slow, reasonably predictable change, neoliberal theory and its vision of markets and market failures works just fine. The energy transition, however, is leading to rapid, large-scale changes with inevitable unforeseen surprises and a certain degree of chaos. It is only natural that this will require frequent revisions. “Make decisions!” is easily called out, especially when it is too late.
However, heavy-handed government rule by decree is socially unacceptable and not an option due to international regulations. At the same time, modifying laws and regulations to correct market failures is very cumbersome and takes an enormous amount of time. The neoliberal energy market will be with us for a long time to come. But it is no panacea for success. Let us, therefore, create a kind of businesslike flexibility in laws and regulations, by considering in advance how we are going to respond if something does not go as expected so that it becomes easier and more attractive for the government to take swift action accordingly.
Read more Dutch-language columns by Martien Visser on Energiepodium.nl
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