Still Puzzled by This One

David Brooks, yesterday:

In the state capitalist world there are government-run enterprises like Gazprom, Petrobras, Saudi Aramco, Petronas, Petróleos de Venezuela, China National Petroleum Corporation and the National Iranian Oil Company. These companies create wealth for the political cliques, and they, in turn, have the power of the state behind them.

With this advantage, state energy companies have been absolutely crushing the private-sector energy companies. In America, we use the phrase Big Oil to describe Exxon Mobil, BP, Royal Dutch Shell and others. But that just shows how parochial we are. In fact, none of these private companies make it on a list of the world’s top 13 energy companies. A generation ago, the biggest multinationals produced well more than half of the world’s oil and gas. But now, according to Bremmer, they produce just 10 percent of the world’s oil and gas and hold only about 3 percent of the world’s reserves.

Well, yes. And if I nationalized the toothbrush industry, I’d make 100% of the toothbrushes in the country. See how effective socialism is? It works — just like magic!

Unanswered of course would be how many toothbrushes I made per year, what quality they were, what features they had, whether my customers were happy, and how brutally I’d suppressed the do-it-yourself dentistry folks. But when you’re the only game in town, you can really, really win. Sure. And when the ground holds so much wealth, the state’s going to elbow in somehow. We even used to have a name for it. (Hint: It wasn’t a good thing.)

Obligatory disclaimer: This is not to say that our own oil companies have been paradigms of free-market virtue either.

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16 thoughts on “Still Puzzled by This One

  1. See, all I think Brooks is saying here is that we can bash BP all we want, but they’re still on our side, which he calls democratic capitalism. Also that the state capitalist oil industries are tied in with a lot of state gangsterism. Both of which strike me as correct.

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  2. If BP were a state company, they could simple declare that safety regulations don’t apply to them, where under our free enterprise system they have to pay for that privilege.

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  3. One can argue that the issue is soon (in a historical sense) to be moot. Peak (easy) oil is on us, and there will soon be much stronger incentives for pursuing alternative energy sources. All of this is as predicted by various free-marketer economists. Once oil is no longer cheap and easy to obtain, we will make the small incremental changes necessary to wean off it.
    What the capitalistic west needs to decide is whether our dependence on oil is worth subsidizing the “state capitalist” enterprizes.

    The hope is that they will not adjust to a post-petrochem energy world as fast as we will.

    Sadly, it appears that China’s planned-centralized economic state is preparing itself better for the post-petrochem world than we are. Time will tell.

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      • @Simon K,

        From what I remember reading, before the 2008 price spike and then the worldwide recession that curtailed demand, all the producers in the world (both opec & non-opec), except for the Saudis, were running full speed and had no excess capacity. Some of this was indeed due to state run enterprise inefficiency (esp in Venezuela) but a large part of it (including Venezuela) is that all their sources were covered down on and they were out of new ones to open up.

        But I could be wrong.

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  4. Crude oil is an odd product – high profit (overall – the actual margin is fairly slim if I recall correctly), little to no product differentiation. That’s probably why it can be nationalized to some effective degree – as long as you can keep pumping out the stuff, it doesn’t matter if nationalization usually results in crappy quality of goods, since it’s all oil anyways (and you can dump the refining jobs on the private market).

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  5. The confusion is with the language used. It’s become acceptable to talk about “state” capitalism, as if capitalism can be operational in any political system. I also don’t know what “democratic” capitalism means — the majority defines the role of capitalism? Capitalism is an economic system and can be capitalism-proper only in a hands-off politial system. Brooks is really talking about different degrees of what I call State Marketism. Capitalism as an economic system hasn’t been operational for decades, anywhere in the world.

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    • @Mike Farmer,

      That’s because you have a purist, idiosyncratic definition of capitalism that excludes any sources of capital you regard as illegitimate. Which is most of them, since as you say, it doesn’t actually exist.

      I’m sure it annoys you to no end that people use capitalism to mean anything with a market mechanism and private investment – but if I understand that’s all you need to have capital (and therefore, “impure” capitalism).

      That said, “state capitalism” is a Trotsky coinage if I recall, so QED.

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      • @JosephFM,
        Since when is it “purist, idiosyncratic ” to stick to definitions? If capitalism means anything to do with capital, then it means nothing. You actually know better than this, but you are being purposefully ignorant for some mysterious reason. Why do you want to appear ignorant?

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        • @Mike Farmer,
          I wasn’t so much being ignorant is not speaking clearly. My point was just that defenders of free market capitalism such as yourself need to realize that when most people (including myself!) hear “capitalism”, they think of the historical practice of capitalism, which is to say, centuries of state interventions on behalf of preexisting holders of capital. You can deny that this is actually capitalism, but that doesn’t change the fact thatit is still a common and valid definition of capitalism – and moreover one that predominates outside of relatively small intellectual circles.

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  6. I had a different reading on this piece – Brooks seems to be recycling the old Cold War rhetoric about how we need to step up our ruthlessness lest the Commies (who are smarter and more powerful than you think!) beat us again!

    This actually makes no sense, since the state oil companies own major shares of the multinationals and vice versa. Functionally they’re not even actual competitors.

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