Dutch Disease Stalks Oil Producing Nations

Cover via Amazon

In today's excerpt - the curse of abundant oil resources in developing countries - in this example, Venezuela. Developing countries with oil grow only one-fourth as fast as those without, and are far more likely to be militarized and devolve into civil war. In fact, oil and mineral-exporting countries have a 23 percent likelihood of civil war within five years, compared to less than 1 percent for nondependent countries.:

"[With its oil wealth], Venezuela began to import more and more and produce less, a typical symptom of Dutch disease, where resource-rich countries see other parts of their economics wither. (Venezuela actually had Dutch disease before the Dutch, but that term wouldn't be invented until the natural gas boom in the Netherlands in the 1960s torpedoed the country's economy. The condition should be called the Caracas cramp.)

"[After the discovery of oil in Venezuela in 1921], nobody paid taxes. If you're an oil state, it's far more efficient to ask oil buyers for more money than to collect taxes from your population, which requires a vast network of tax collectors, a bureaucracy, laws that are fair, and a justice system to administer them. Collecting oil money, by contrast, requires a small cadre of intellectuals to set policy and diplomats to make it happen. ... The political, economic, and psychological ramifications of this ... are profound.

" 'Systematically the government went after oil money rather than raising taxes,' says economist Francisco Monaldi. 'There is no taxation and therefore no representation here. The state here is extremely autonomous.' Whether it's a dictatorship, a democracy, or something in between, the state's only patron is the oil industry, and all of its attention is focused outward. What's more, the state owes nothing more than promises to the people of Venezuela, because they have so little leverage on the state's income.

"When a state develops the ability to collect taxes, the bureaucracy and mechanisms it creates are expensive. They perpetuate their existence by diligently collecting as much money as possible and encouraging the growth of a private economy to collect taxes from. A strong private economy, so the thinking goes, creates a strong civil society, fostering other centers of power that keep the state in check. Like other intellectuals I talk with in other oil states, Monaldi finds taxes more interesting and more useful than abstract ideas about democracy and ballot boxes. Taxes aren't democracy, but they seem to connect taxpayers and government in a way that has democratizing effects. Studies by Michael L. Ross at UCLA found that taxes alone don't foster accountability, but the relationship of taxes to government services creates a struggle for value between the state and citizens, which is some kind of accountability. ...

"Abdoulaye Djonouma, president of Chad's Chamber of Commerce, says oil brought about economic and agricultural collapse in Nigeria and Gabon. For Chad, which has fewer resources, he fears worse: militarization. He ticks off all the former French colonies that have become militarized. Virtually all. (One study found that oil-exporting countries spend between two and ten times more on their militaries than other developing countries.) ...

"At Stanford, Terry Lynn Karl's analysis of Venezuela's economy during the 1970s and '80s shows that countries whose economy is dominated by oil exports tend to experience shrinking standards of living - something that Chad can hardly afford. Oil has opportunity costs: A study by Jeffrey Sachs and Andres Warner showed that of ninety-seven developing countries, those without oil grew four times as much as those with oil. At UCLA, Michael L. Ross did regression studies showing that governments that export oil tend to become less democratic over time. At Oxford, Paul Collier's regression studies show that oil, and

"At Stanford, Terry Lynn Karl's analysis of Venezuela's economy during the 1970s and '80s shows that countries whose economy is dominated by oil exports tend to experience shrinking standards of living - something that Chad can hardly afford. Oil has opportunity costs: A study by Jeffrey Sachs and Andres Warner showed that of ninety-seven developing countries, those without oil grew four times as much as those with oil. At UCLA, Michael L. Ross did regression studies showing that governments that export oil tend to become less democratic over time. At Oxford, Paul Collier's regression studies show that oil, and mineral-exporting countries have a 23 percent likelihood of civil war within five years, compared to less than 1 percent for nondependent countries."

Author: Lisa Margonelli
Title: Oil on the Brain
Publisher: Nan A. Talese/Doubleday
Date: Copyright 2007 by Lisa Margonelli
Pages: 146-147, 174-176

About Us Delanceyplace is a brief daily email with an excerpt or quote we view as interesting or noteworthy, offered with commentary to provide context.  There is no theme, except that most excerpts will come from a non-fiction work, mainly works of history, and we hope will have a more universal relevance than simply the subject of the book from which they came.  To visit our homepage or sign up for our daily email click here To view previous daily emails click here. To sign up for our daily email click here.

Related articles by Zemanta

• UPDATE 1-Venezuela revels in oil reserves, challenges remain (reuters.com)
• CORRECTED - Venezuela revels in oil reserves, challenges remain (reuters.com)
• Chavez Threatens to Cut Oil Exports to U.S. if Colombia Attacks (dailyfinance.com)
• UPDATE 4-Chavez threatens U.S. oil cut in Colombia dispute (reuters.com)
• You: Venezuela's Chavez threatens to cut off US oil (france24.com)
• US rules out military action against Venezuela (alternet.org)
• U.S. rules out military action against Venezuela (nationalpost.com)
• Analysis: Chavez uses Colombia feud and oil threat before vote (reuters.com)
• SCENARIOS-Will Colombia-Venezuela crisis worsen? (reuters.com)
• Chavez threatens to cut off oil to U.S. (cnn.com)

Image via Wikipedia

Published on Wednesday, June 16, 2010 by Creators Syndicate

BP Is a Corporate Criminal

by Jim Hightower

Gosh, how quickly things turn. One day, you're a strutting peacock — the next day, you're just another gasping, oil-covered bird.
In early April, BP was strutting about in full corporate splendor, showing off the $9 billion in profits that it had soaked up in just the first three months of this year. It was also basking in a corporate re-imaging campaign, depicting itself as a clean-energy pioneer and declaring that BP now stood for "Beyond Petroleum."
Since its Gulf of Mexico well blew out on April 20, however, BP has proven to be beyond belief. The wider and deeper that this catastrophe spreads, the more we discover just how oily this giant is.
From the time it was known as the Anglo-Persian Oil Company and set out to grab and control the rich petroleum reserves owned by what is now Iran, BP has been a recidivist global criminal. In the past three decades, it grew huge by swallowing such competitors as Standard Oil of Ohio, Amoco and Arco. Along the way, it has been implicated in bribery, overthrowing governments, plunder and money laundering, plus having established one of the worst safety and environmental records in an industry that is notoriously reckless on both counts.
And now, its rap sheet grows almost daily. In fact, the Center for Public Integrity has revealed that the oil giant's current catastrophic mess should come as no surprise, for it has a long and sorry record of causing calamities. In the last three years, the center says, an astonishing "97 percent of all flagrant violations found in the refining industry by government safety inspectors" came at BP facilities. These included 760 violations rated as "egregious" and "willful." In contrast, the oil company with the second-worst record had only eight such citations.
While its CEO, Tony Hayward, claims that its gulf blowout was simply a tragic accident that no one could've foreseen, internal corporate documents reveal that BP itself had been struggling for nearly a year with its inability to get this well under control.
Also, it had been willfully violating its own safety policies and had flat out lied to regulators about its ability to cope with what's delicately called a major "petroleum release" in the Gulf of Mexico.
"What the hell did we do to deserve this?" Hayward asked shortly after his faulty well exploded. Excuse us, Tony, but you're not the victim here — and this disaster is not the work of fate. Rather, the deadly gusher in the gulf is a direct product of BP's reckless pursuit of profits. You waltzed around environmental protections, deliberately avoided installing relatively cheap safety equipment, and cavalierly lied about the likelihood of disaster and your ability to cope with it.
"It wasn't our accident," the CEO later declared, as oil was spreading. Wow, Tony, in one four-word sentence, you told two lies. First, BP owns the well, and it is your mess. Second, the mess was not an "accident," but the inevitable result of hubris and greed flowing straight from BP's executive suite.
"The Gulf of Mexico is a very big ocean," Hayward told the media, trying to sidestep the fact that BP's mess was fast becoming America's worst oil calamity. Indeed, Tony coolly explained that the amount of oil spewing from the well "is tiny in relation to the total water volume." This flabbergasting comment came only two weeks before it was revealed that the amount of gushing oil was 19 times more than BP had been claiming.
Eleven oil workers are dead, thousands of Gulf Coast people have had their livelihoods devastated and unfathomable damage is being done to the gulf ecology. Imagine how the authorities would be treating the offender if BP were a person. It would've been put behind bars long ago — if not on death row.

© 2010 Creators.com

National radio commentator, writer, public speaker, and author of the book, Swim Against The Current: Even A Dead Fish Can Go With The Flow, Jim Hightower has spent three decades battling the Powers That Be on behalf of the Powers That Ought To Be - consumers, working families, environmentalists, small businesses, and just-plain-folks.

Related articles by Zemanta

• Will the BP of the future stand for Big Petroleum - or just bit player (telegraph.co.uk)
• BP Lost Its Women Before It Lost Its Brand (And Its Stock Price) (prweb.com)
• BP to pay $20bn into trust for clearing up oil spill devastation (guardian.co.uk)
• "Imperial Oil" and related posts (cringely.com)
• BP Cancels Dividend to Set Aside $20 Billion for Spill Costs (businessweek.com)
• After Blasting BP, Obama Now Faces its Leaders (usnews.com)
• BP executives arrive at WH to meet with Obama (seattletimes.nwsource.com)
• BP officials arrive at White House for meeting with Obama (thestar.com)
• Some oil spill events on Wednesday, June 16, 2010 (seattletimes.nwsource.com)
• Timeline: Gulf of Mexico oil spill (reuters.com)

Oil Profits Ignore Actual Cost of Oil

Image by SkyTruth via Flickr

Published on Tuesday, June 8, 2010 by The Guardian/UK
The Oil Firms' Profits Ignore the Real Costs
The energy industry has long dumped its damage and, like the banks, made scant provision against disaster. Time to pay up

by George Monbiot
Has BP ever made a profit? The question looks daft. The oil company posted profits of $26bn last year. There's no doubt that BP has been pumping money into the pockets of its shareholders. The question is whether this money is what the company says it is. BP calls it profit. I call it the provision the firm should be making against future liabilities.

Despite an angry letter from two US senators and a warning from Barack Obama about spending big money on their shareholders while nickel-and-diming coastal people, despite the fact that it has no idea what its total liabilities in the Gulf of Mexico will be, BP seems to be planning to pay a dividend this year. It's likely to amount to more than $10bn. As the two senators noted, by moving money "off the company's books and into investors' pockets", BP "will make it much more difficult to repay the US government and American communities".

Pollution has been defined as a resource in the wrong place. That's also a pretty good description of the company's profits. The great plumes of money that have been bursting out of the company's accounts every year are not BP's to give away. They consist, in part or in whole, of the externalised costs the company has failed to pay, and which the rest of society must carry.

Does this sound familiar? In the 10 years preceding the crash, the banks posted and disposed of stupendous profits. When their risky ventures failed, they discovered that they hadn't made sufficient provision against future costs, and had to go begging from the state. They had classified their annual surplus as profit and given it to their investors and staff long before it was safe to do so.

Last week the British government bumped into another consequence of failing to take future costs into account. Chris Huhne, the new secretary of state for energy and climate change, revealed that nuclear decommissioning liabilities will cost the government £4bn more than it was expecting to pay over the next three years. This will cancel out two-thirds of the vicious cuts the government has announced and swallow most of his department's budget. As Huhne pointed out: "It is a classic example of short-termism. I cannot think of a better example of a failure to take a decision in the short run costing the taxpayer a hell of a lot more in the long run."

The decommissioning costs imposed on society by nuclear power will be dwarfed by those that are imposed by the fossil fuel industry. They include, but are not confined to, the money that will have to be spent on adapting to climate change. The United Nations estimates this cost at $50bn–$170bn a year, but a report last year by British scientists suggested that this is around three times too low, as it counts only a small proportion of likely impacts.

The UN has hired the consultancy Trucost to estimate the costs dumped on the environment by the world's 3,000 biggest public companies. It doesn't report until October, but earlier this year the Guardian published the interim results. Trucost had estimated the damage these companies inflicted on the environment in 2008 at $2.2 trillion, equivalent to one third of their profits for that year. This too is likely to be an underestimate, as the draft report did not try to value the long-term costs of any issue except climate change. Nor did it count the wider social costs of environmental change.

A paper by the New Economics Foundation in 2006 used government estimates of the cost of carbon emissions to calculate the liabilities of Shell and BP. It found that while the two companies had just posted profits of £25bn, they had incurred costs in the same year of £46.5bn. The oil leaking into the Gulf of Mexico from the Deepwater Horizon well is scarcely more damaging, and its eventual impacts scarcely more expensive, than the oil that is captured by neighbouring rigs then processed and burnt as intended.

The total costs imposed by the oil companies, which include the loss of human lives and the extinction of species, cannot be accounted. But even if they could, you shouldn't expect the companies to carry them. They might be incapable of capping their leaks; they are adept at capping their liabilities. The Deepwater Horizon rig, which is owned by Transocean, is registered in the Marshall Islands. Most oil companies pull the same trick: they register their rigs and ships in small countries with weak governments and no international reach. These nations are, in other words, incapable of regulating them.

Flags of convenience signify more than the place of registration: they're an unmistakable sign that responsibilities are being offloaded. If powerful governments were serious about tackling pollution, the first thing they would do would be to force oil companies to register their property in the places where their major interests lie.

US lawyers are drooling over the prospect of what one of them called "the largest tort we've had in this country". Some financial analysts are predicting the death of BP, as the fines and compensation it will have to pay outweigh its earnings. I don't believe a word of it.

ExxonMobil was initially fined $5bn for the Exxon Valdez disaster, in 1989. But its record-breaking profits allowed it to pay record-breaking legal fees: after 19 years of argument it got the fine reduced to $507m. That's equivalent to the profit it made every 10 days last year. Yesterday, after 25 years of deliberations, an Indian court triumphantly convicted Union Carbide India Ltd of causing death by negligence through the Bhopal catastrophe. There was just one catch: Union Carbide India Ltd ceased to exist many years ago. It wound itself up to avoid this outcome, and its liabilities vanished in a puff of poisoned gas.

BP's insurers will take a hit, as will the pension funds which invested so heavily in it; but, though some people are proposing costs of $40bn or even $60bn, I will bet the price of a barrel of crude that the company is still in business 10 years from now. Everything else – the ecosystems it blights, the fishing and tourist industries, a habitable climate – might collapse around it, but BP, like the banks, will be deemed too big to fail. Other people will pick up the costs.

There is an alternative, but it is unlikely to materialise. Just as Norway has treated its oil money not as profit but as provision against a tougher future, so the governments in whose territories oil companies work should force them to pay into a decommissioning fund. The levy should reflect the costs that economists are able to calculate, plus a contingency for those we can't yet foresee.

This would outrage the oil firms, as it would render many of them unprofitable. But there's a simple answer to that: the money currently defined as profit is nothing of the kind.
© Guardian News and Media Limited 2010

George Monbiot is the author of the best selling books The Age of Consent: a manifesto for a new world order and Captive State: the corporate takeover of Britain. He writes a weekly column for the Guardian newspaper. Visit his website at www.monbiot.com

Related articles by Zemanta

• Margareta Pagano: How far do we have to drill to find BP's chairman? (independent.co.uk)
• BP CEO Tony Hayward May Be Forced Out Over Handling Of Oil Spill (huffingtonpost.com)
• Bruce Anderson: Obama, not BP, is the villain of this piece (independent.co.uk)
• Toxic legacy (news.bbc.co.uk)
• Caroline Myss: Mother Nature Has Politically Come of Age (huffingtonpost.com)
• More leak control helps BP but spill menaces Florida (scientificamerican.com)
• Is It Obama's Oil Spill Now? (roomfordebate.blogs.nytimes.com)
• More leak control helps BP but spill menaces Florida (financialpost.com)
• Ace Metrix Data Shows 75% of Consumers Think BP CEO Not the Right Leader; 20% Done Buying Gas from BP (eon.businesswire.com)
• What the Hell is Happening with the BP Oil Gusher? (themoderatevoice.com)
• The oil firms' profits ignore the real costs | George Monbiot (guardian.co.uk)
• BP Spill Shows a Profit Buying 2018 Oil, Selling Spot (Update2) (businessweek.com)

Similarities Between Oil Spill and Financial Crisis

Image by nasa1fan/MSFC via Flickr

Published on Wednesday, May 12, 2010 by TruthDig.com
Verify, Baby, Verify!

by Robert Scheer

"Drill, baby, drill!" Those were the words that Sarah Palin used to electrify the 2008 Republican National Convention. But while she popularized that environment-be-damned slogan, it had already defined the eight years of oil-drilling policy that prevailed during the presidency of George W. Bush.

Those red state voters of Alabama, Mississippi and Louisiana whose livelihood is now threatened by the idiocy of that unfettered deregulatory stance might well be having second thoughts. So, too, those Democratic Party opportunists who had prevailed on President Barack Obama to one-up the GOP by vastly increasing the scope of offshore drilling.

Not so Palin, who last week took to Twitter to defend such inanities, blaming the oil spill problem not on lax regulation but rather on those damn foreigners. Ignoring the fact that her target alien company, British Petroleum, had employed her own husband, Palin tweeted: "Gulf: learn from Alaska's lesson w/foreign oil co's: don't naively trust-VERIFY."

Great, except that it is beyond the power of any one state to adequately verify what is going on deep down offshore, and as Tuesday's Senate testimony of top executives from the three companies implicated in this spill made clear, there is plenty of blame for the Brits to share with their good ol' American counterparts. What could be more American than Dick Cheney's former company, Halliburton, which constructed the well? Or Transocean, which operated the rig and is a homegrown product of the Southwestern energy industry?

But they are all three exactly the same: multinational corporations that couldn't care less about the countries where their home offices happen to be based. Recall Halliburton's controversial corporate relocation to Dubai three years ago and Transocean's registration in the Cayman Islands. What they are loyal to is the bottom line and the executive bonuses that it portends. They fly the flag of a particular nation only for convenience, and it is their threat to shift their base of operations that is used to effectively thwart government regulation.

As her recent tweet confirms, Palin admits verification is necessary, and in a Facebook posting, she bases that on her state's experience with the Exxon Valdez disaster. In the case of the Gulf oil spill, verification was the responsibility of the U.S. Department of Interior's Mineral Management Service. That's the same pathetic industry-whipped outfit whose personnel were literally in bed with representatives of various companies they were supposed to be regulating.

But far beyond such racy incentives to look the other way, the MMS, over the last decade of deregulation mania, had been encouraged to become a handmaiden of the industry rather than its supervisor in any meaningful sense of that term. That is the inescapable conclusion of a devastating Wall Street Journal report last week that concluded, "The small U.S agency that oversees offshore drilling doesn't write or implement most safety regulations, having gradually shifted such responsibilities to the oil industry itself for more than a decade."

That was a Republican-led decade in which regulation became a dirty word, and as with the financial meltdown, we are now witnessing, in the oil spill catastrophe, the dire consequences of radical free-market ideology run amok. If offshore drilling is required for our economic well-being, a questionable enough proposition given the inherent risks, it is a cause that will be set back dramatically by the current disaster.

The Obama administration, which was about to launch a vast expansion of such efforts, has had to pull back, and there are few in either party who will now question that a much more prudent course is in order. Hence the administration's recent decision to revamp the MMS by splitting its regulator function from its other role of collecting tax revenue from the oil companies it was supposed to be regulating.

After noting that the safety record of U.S. offshore drilling "compares unfavorably" to that of other nations, the WSJ observed that the key focus of the MMS was not safety enforcement, but rather maximizing oil production from which the government took a share of the profits. Hopefully that built-in and glaring, but heretofore largely unnoticed, contradiction between the government as a regulator and as a partner in oil profits will now be ended.

So, too, the illusion, as with the radical deregulation of the financial industry, that unbridled corporate greed can also provide for the common good. Greed needs a timeout with adult supervision for these out-of-control conglomerates messing with every aspect of our lives. But that won't happen until government regulation of multinational corporations is made respectable once again with adequately funded agencies pursuing an uncompromised public interest agenda.
© 2010 TruthDig.com

Robert Scheer is editor of Truthdig.com and a regular columnist for The San Francisco Chronicle.

Related articles by Zemanta

• Gulf Oil Spill Proves the Idiocy of Unfettered Deregulation (alternet.org)
• Poll: Support for expanded offshore drilling drops (dailykos.com)
• Gulf oil spill: firms ignored warning signs before blast, inquiry hears (guardian.co.uk)
• WH Wants Increased Industry Liability in Oil Spill (abcnews.go.com)
• Oil executives face U.S. Congress on Gulf spill (windsorstar.com)
• The Politics of "Drill Baby Drill" (themoderatevoice.com)
• What went wrong at BP's well - search for answers (money.cnn.com)
• Video: Is Drill Here, Drill Now dead? (hotair.com)
• Obama to toughen big oil oversight (money.cnn.com)
• White House to split oil agency after spill (msnbc.msn.com)
• THE INFLUENCE GAME: Can BP's connections help? (sfgate.com)
• Will BP's Washington connections help it now? (seattletimes.nwsource.com)