NHS could learn a thing or two from big oil says Andrew Hunt

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By Andrew Hunt.

“When money is handed out too easily, people quickly become wasteful, sloppy and ineffective. There really is no limit to how much money big bureaucracies can fritter away.”

In 2003, a barrel of oil cost $31 ($49 in today’s money). By 2013 it had tripled to $98 ($123 in today’s money).

Yet during that decade, big oil’s profitability collapsed and dividends to shareholders barely rose. Meanwhile, every new production project would come in delayed and massively over budget.

George Best famously quipped, “I spent a lot of money on booze, birds and fast cars. The rest I just squandered.”

During the noughties, big oil certainly suffered from George Best Syndrome. With the price of its product inexorably rising, money simply rolled in without being earned. The result was complacency and chronic waste on an industrial scale.

But from 2014, the price of oil collapsed, with the price eventually falling to below zero (meaning buyers got paid to take a barrel of oil away) in 2020.

Thanks to this unprecedented slump, big oil faced shock therapy. Banks and shareholders forced managements to cut their cloth to suit. Drastic reforms and cost-cutting were implemented across the board. Accountability and tough targets were introduced. Wages and bills were slashed and suppliers were squeezed. In some cases (such as day rates for rig hire), costs were cut by over 80%.

And crucially, big oil innovated like crazy. We think of the digital revolution as being consumer-led; but in the background the energy industry has been adopting automation, new materials and AI faster than anywhere else. The results are astounding.

We think of the digital revolution as being consumer-led; but in the background the energy industry has been adopting automation, new materials and AI faster than anywhere else. The results are astounding.

Projects that used to require 50 rigs to exploit in 2018, now take around 15 for the same output. Unsurprisingly, oil majors are spending around 40% less on capex today than they were in 2013; and yet they are producing more oil.

Today oil has settled at around $80 a barrel. In real terms, that is 35% below where it was a decade ago. And yet, the oil majors are announcing record profits with record dividends to shareholders. This is in spite of facing tougher environmental and regulatory standards than they did in 2013. Oil companies have not just managed to save money: today, they are safer places to work, less corrupt and more environmentally responsible.

The fall and rise of Big Oil has a moral for us all. When money is handed out too easily, people quickly become wasteful, sloppy and ineffective. There really is no limit to how much money big bureaucracies can fritter away.

When money is handed out too easily, people quickly become wasteful, sloppy and ineffective. There really is no limit to how much money big bureaucracies can fritter away.

And yet, when faced with tough budgets and even tougher oversight, those same enterprises can deliver miracles of resourcefulness and ingenuity.

The parallels between Big Oil and the Public Sector could not be clearer. Both involve big bureaucracies with huge numbers of staff. Both are under intense public scrutiny. Both have faced rising legacy liabilities and increased regulatory pressure. But only one of them has been handed ever more resources while delivering less and less. Meanwhile, the other has seen the price of its product slashed while delivering more and more.

What is perhaps most egregious about this contrast is that we are living through one of the most rapid technological revolutions in history. It is hard to conceive how public sector productivity could collapse in an age where so much progress is possible.

If Big Oil can do it, then why not the public sector? If MPs had the courage and commitment to drive the sort of cultural and technological revolution that the energy industry has managed, there is no reason why public services could not be vastly improved even while public spending as a share of GDP is cut by a third. The resulting tax cuts and improved services would lead to a surge in prosperity and investment, alongside a renewed confidence in government.

A revolution like this does not require magical thinking. Like everything else, we need to dispel the lazy platitude that with public services you get what you pay for.

A revolution like this does not require magical thinking. Like everything else, we need to dispel the lazy platitude that with public services you get what you pay for.

The failure of the NHS when benchmarked against comparable and less costly national health services provides a case in point.

What is needed is a combination of budgetary shock therapy and a cultural transformation focused on accountability and innovation. Thanks to the corporate sector we already know exactly how to deliver this.

It may take a decade, but the experience of big oil has shown us what is possible. The prize here is just too big too ignore.

And as the saying goes, eyes on the prize!


Author Andrew Hunt graduated from Cambridge with a Law degree in 2003. He worked in TV production before moving into finance. It was here that he became fascinated by how personal investors and small companies could turn negligible resources into enormous fortunes. Applying the same mindset and principles, Hunt was able to retire in his thirties. He now invests in interesting projects which aim to make the world a better place and runs a radical centre-right environmental think tank. He is also the author of Better Value Investing.

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