Please catch up Greg.

S

Thanks again for your reply and apologies for the delay.

You raise two points against me and I’ll deal with each in order. On both issues I think you’re missing the point and being a little pedantic.

Firstly: the issue of profits. I have some preliminary remarks: When any company makes money they face a decision on what to invest back into the business and what to distribute to shareholders. You refer only to the latter – what goes to the shareholders – as “profit”, (arguing that if it’s reinvested it isn’t profit) and technically you are correct, but there is a sizeable chunk of other money made that doesn’t go to shareholders. So, for instance this year the company made $27bn in profit, but it invested almost the same amount in new projects along with an additional $7bn on securing a larger equity holding in Shell Canada. They are launching new oil and gas projects all the time, because (strange as it may sound) oil and gas doesn’t just fly out of the ground and hit you in the face. Shell is able to give billions back to shareholders precisely because they have invested so much money into discovering oil and gas reserves. How much of the money they make that gets put back in will probably rise further in the future. It’s one of the reasons why a windfall tax would be counter-productive: more money going to the government and less to spend on exploration and new refineries.

When objecting to my comments on profit you should be aware that I’m not on my own with these comments. For instance, Andrew Hill, City Editor of the Financial Times (that’s the big pink broadsheet – you may have seen it lying around on news stands) says this: “The reality is that as fast as Shell pulls in profit, it is having to reinvest it to prepare for the future. The group’s capital expenditure for 2007, excluding acquisitions and disposals, was a staggering $25.5bn – itself almost certainly a record or near-record. That figure will rise again this year to $28bn-$29bn – in tabloid terms, £1.7m an hour.” [Emphasis mine] Obviously he doesn’t understand profits either, eh? I first wrote about this matter when BP were making headlines for the same reason a while ago and it was then that I first read commentary, again in the Financial Times, about the reinvestment of most of the Shell’s profits one year – but I can’t find the article online, I’ll post it if I get it. Perhaps you should email them and inform them of their rather basic mistake.

You can read Andrew Hill’s full article here:

http://www.ft.com/cms/s/0/f47666a0-d01b-11dc-9309-0000779fd2ac.html?nclick_check=1

The BBC also ran several features about the story, including this offering from a business editor: “[Oil companies] also have to reinvest some of their profits into risky ventures. Many oil search projects fail and never bring back any money.” [Emphasis mine]. For the whole article with links to other pieces see:

http://news.bbc.co.uk/1/hi/business/1168070.stm
And lastly from the horses mouth itself: “If we were to make less profit, there would be less money for capital investment in new production. The most just thing we can do is reinvest our profit in the future. If we did not, the pump price would go ever higher” [Emphasis mine].

With that out of the way I can turn my attention to your having utterly missed the point. Let’s say we run on the assumption that everything you have said is right. What follows? Not a lot really. If you care to pay attention to the context of the paragraph in which these comments appear you will notice that I’m simply challenging the “Bottomless Pocket Myth.” It doesn’t matter what happens to the “profits” (whatever way you define that term) and it doesn’t make a blind bit of difference to my point if the entire 27bn goes to shareholders to spend on new boats, mansions and high class hookers. If a shareholder – lets call him Beggsy – buys a boat – who makes the boat? If another – lets call him Phil – buys a mansion – who does the legal work, the gardening, the cleaning, the maintenance? This money doesn’t sit and stagnate – it’s spent on other things, and other people benefit. And just what do you think a shareholder is Jon if not an investor? Most of this money will end up invested in lots of different projects – business and personal interests. Either way the Bottomless Pocket Myth is rubbish.

Which pretty much relegates your first point to the level of, well, a bit of nit-picking really.

So onto the second point: your accusation that I am “praising Shell simply for making money” To support you contention you quote the last line of my article: “So, since no one else has said so: congratulations Shell, if only more businesses could be like you.” Now this is rather puzzling. Not only does this last sentence fail to contain the meaning you wish to attach to it, but even much less so does my entire article (despite the fact that you appear to be reading the entire article in light of the signing-off line). This last sentence hardly equates to “praising Shell simply for making money.” Simply making money isn’t praise worthy: which is why we wouldn’t praise a bank robber who used the cash for a child porn website. Much depends on what the money is used for. It’s one word of congratulations to a company that has got little but abuse because of the level of profits it has made. This is a company that has performed well over the year in trying to locate the vital oil and gas supplies that our lives currently depend on. It’s a big employer, and a lot of the profits it has made will mean that many Average Joes might have just a little bit more in their pension pot. Moreover it is becoming more and more dedicated to investing in renewable energy. And all this before we consider the economic benefits it brings to Britain as employer, investor and massive tax payer. In case you think I’m out on a limb here, there are several articles on the same theme: one of them being this article by Graham Searjeant in The Times.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article725182.ece

In any event it doesn‘t matter. Even if you happened to be right it wouldn‘t amount to much in the context of what my article is actually about (read it without the last line and see if that helps you). So, you are again guilty of both nit-picking and failing to comprehend the point of the article. The article wasn’t about praising Shell at all, much less so “simply for making money.” It was a response to the many cries for a windfall tax from people who saw the words “big profits” close to “big company” and engaged in various irrational outbursts. Ironically it would appear you actually agree with me but don’t realise it.

Now, with those two goats well and truly flogged we can see that you are unable to support your earlier contention that my article is factually incorrect, lacking in reason, or incoherent. On the contrary, what your comments do show is that you really haven’t understood much of it at all and have simply tried to knock down a house by knocking a few slates off the roof.

Food for thought. Sorry I had to serve you such a big plate of it.

Stephen.

Thanks for the reply. I want to respond to you more fully than my current time allows so I’ll be back to you in the next couple of days on this.

Cheers,

S.

I have inferred from your post that no, you don’t understand how profit is calculated. You refer to Shell reinvesting most of their profits.

The profits you refer to, unless they have changed their financial reporting structure from previous years (and decided to go against international accounting standards) are after R&D costs have been treated in the financial statements. Far from reinvesting ‘profits’ most profits are redistributed to shareholders. This is entirely normal and to be investing reported profits would mean they weren’t profits.

I haven’t seen the recent accounts but a quick google shows that more than half were distributed to shareholders etc. a few years ago.

I’m not saying there is anything wrong with that, far from it – it’s how the system operates and undoubtedly contributes (is responsible for, even) the efficiency of the market.

Secondly – you say that “It was not my intention to praise Shell “simply for making money” as you accuse me of.” To quote:

“So, since no one else has said so: congratulations Shell, if only more businesses could be like you.”

If you could tell me where I’m misinterpreting here I would be grateful.

If you aren’t congratulating them for making money, what are you praising them for? And as you allude, their raison d’etre is to maximise shareholder value (different from making profits, to be accurate), so what else could you be praising them for?

While you’re at it you could maybe take even a cursory look at Shell’s record in Nigeria, in the former Soviet Union, and elsewhere. If you know anything about it and still hold the view that “if only more businesses could be like” Shell, then I’d suggest your ethical compass may be a little awry.

I apologise if this is not enough detail but again, I can’t recite chapter and verse, it’s publically available, and it might be worth knowing a bit about organisations before praising them in a public forum.

Yes, I get that your post was about their financial statements. If, in your opinion, these exist in isolation from how they are arrived at, then fair enough. We are of a different breed.

Here’s what I think you did – you saw a socialist public figure make reactionary and ill-advised comments about Shell’s profits. No argument there from me.

You then proceeded to write a poorly informed and reactionary article about Shell and the trade unionist’s response, without considering whether you actually knew or were prepared to learn anything about the company in question other than that which was right in front of you – or indeed if you understood what the company was talking about when it referred to its profits.

I don’t see what’s so different between his knee-jerk and yours.

And just to be clear – no, I’m not a socialist, I’m not even an ‘environmentalist’ any more than the next man, if you’re wondering whether I have an axe to grind against Shell.

I am just perplexed why you would publish your thoughts on this matter without really, well, thinking about them or knowing anything about the company other than ‘they make big bucks and are therefore to be commended’.

Thanks for your response, though I think you’ve got the wrong of the stick about this one. I’m pushed for time so I need to bash this out fairly quickly:

Are you accusing me of not understanding how profits are calculated? How did you deduce that one?

You are correct that knowledge isn’t a prerequisite for opinions but perhaps you can explain where my post fails in this regard rather than a vague allusion to some facts you think I’ve overlooked. I’m not averse to being corrected so if you have some specific complaint about my article – primarily a dig at those calling for massive windfall taxes on big companies – then feel free to mention it.

I’m not sure how Shells “er, difficulties” are relevant to the point I’m making here. It was not my intention to praise Shell “simply for making money” as you accuse me of. I’m having a go at those critics who denouce Shell simply for making profits they consider “obscene”. There’s a difference. I don’t see how Shell’s “er, difficulties” distract from the actual thrust of my article.

You end your comments with another rather vague allusion to “fact” “reason” and “coherence” without providing a single example of a failure in fact, an error of reasoning, or point of incoherence on my part (I’m sure you’re right, but…) If I have mis-stated or overlooked a relevant fact please show me where. If there is an error in reasoning perhaps you could shed some light on it. And if there is a lack of coherence maybe you could say exactly where that occurs. You may well be right, and what a shame if no-one could see you are due to a lack of clarity on your part (hey, you should run for Archbishop!).

Libertarians approach the issue of price fixing differently. Many see it as similar to the case of monopoly: when a company gets a dominant position in the market and then tries to push the price. When this happens (in a free market) normally competitors and investors are attracted to the product/service/market in question which tends to challenge the monopoly position of the company charging prices too high above cost price. Further, if the product is non-essential there is massive consumer power which stops a company charging more than the consuming market will put up with – because people just stop buying it. There is still some consumer power when it comes to more essential items, but the fact of the matter is that it rarely happens in a properly free market because competition can be so fierce and negotiating a price fix that’s mutually beneficial is difficult. Of course it does happen, but no libertarian I know argues that the consumer always gets the best possible economic deal. You refer to oil cartels (as did I in my article) but to be honest I’m much more worried about government tax.

And that’s before we discuss PR, government monopolies and other related areas of economics and business.

That’s about all I have time for.

Just to end: you’re not a libertarian, and you say you’re not a socialist. What are your political views? What are the limits of government intervention and, more importantly, why?

Good talking to you.

S.

http://www.finfacts.com/irelandbusinessnews/publish/article_10008268.shtml

What do libertarians think about pricefixing and cartels, I wonder?

Or isn’t aware that Shell’s er, ‘difficulties,’ in certain overseas territories are now a case study in disastrous social and environmental activities.

Or that they’re a rare example of a company being so aware of their negative impact on human rights in host territories that they felt obliged to eventually put a rather weak rejoinder on their website.

You know, I’m not a socialist. But this blog post is as misguided in its praise of a corporation for simply making money as the TU bloke cited is in his ill-advised rant against them. Fact, reason or coherence seems absent on both sides.

S.