THE OIL CRISIS - SOCIALIST ANSWERS

...The Left must propose democratic and social alternatives that proceed step by carefully reasoned and tested step, not simply a change in the title to the energy industry, but of its fundamental property relationships as well...

...Dankwart Rustow's article in this issue provides ample proof (and I, too, have documented the point in a series of articles in the Newsletter of the Democratic Left...

...the owners of the industry that is being nationalized (which usually occurs when private policies have proved catastrophic, as is now the case) are handsomely rewarded for their past misdeeds...

...But third, the decision as to what form $1 trillion of investment will take is to be left to a private board room not even responsive to Wall Street, much less to the American people...

...The current rules of the game are designed to make government the servant of the companies, and the Journal's case is as logical as it is unconscionable...

...THIS ARGUMENT is, as will be seen, outrageous and wrong, yet it has the unintended consequence of demonstrating that structural change 140 COMMENTS AND OPINIONS is an immediate, practical necessity...

...Therefore, the profits should be raised, not lowered—and those who attack the depletion allowance, the foreign write-offs, the special treatment of intangible drilling expenses, and the other federal subsidies are only soft-headed liberals...

...Adam Smith would be appalled...

...Its representatives sit on the board of directors of Arco, Royal Dutch, and Standard Oil of New Jersey, and they manage a fund for Mobil...

...They have an enormous, and integrated, stake in an existing energy industry (since the oil corporations also own our coal, our geothermal properties, our shale oil leases, etc...

...We know that our regular readers will understand and continue to support Dissent...

...IN THE NOT-SO-LONG RUN, the oil industry should be socialized and its basic priorities COMMENTS AND OPINIONS 141 should be determined by a democratic political process within the nation and within the industry...

...therefore "perverse incentives" motivating them not to put money into a technology that might be socially useful, environmentally benign, efficient, and deleterious to their established interests...

...One says "nationalize the oil industry" and, particularly in America where our experience in this regard is extremely limited, it seems that things will really be fundamentally different, that a very radical proposal has been placed on the table...

...Is it inconceivable that an industry nationalized under the Nixon (or Ford) administration might be run by the very manipulators who have worked hand-inglove with Washington for more than a generation against the people's interest...

...This is particularly true in the case of multinational corporations which, with a little judicious juggling, can choose the country where they want to surface, or hide, their profits...

...the main beneficiaries of the cheap goods and services of the public sector are the largest buyers, i.e., big corporations in the private sector...

...Thus, the source of risk capital in the United States is no longer the abstemious entrepreneur but the consumer who is charged for his future services in the present prices...

...The process envisioned by the Wall Street Journal and the Council of Economic Advisers is social in every single aspect save one: that private managers will set all the basic priorities while financing their preferences with consumers' and taxpayers' funds...

...At the same time, I think the democratic Left should fight vigorously for the Stevenson Bill establishing a TVA-type, public corporation for the research and development of energy reserves on public land (which amounts to 50-75 percent of the total) . This, it seems to me, is the real alternative to the Nixon– Jackson schemes for a federal technological investment that would go, in effect, to the private companies...

...Only in a country as ideologically conservative as America could this proposal still seem simple and advanced...

...And again the question is posed: how...

...and, in any case, the hearings before Frank Church's Senate subcommittee on the multinationals revealed that the oil giants have already "stockpiled" tax credits to offset the effect of the Nixon tax for the next five years...

...There are...

...Those $1 trillion worth of choices will undoubtedly have more influence on the lives of 21st-century America than almost all pf the laws passed by the legislatures of the several states and, indeed, than most of the bills approved by the Congress and signed by the President...

...I will not argue the details of this statement...

...Should we not opt for an excess-profits tax, as the AFL—CIO has demanded...

...The energy crisis is primarily the result of a partnership between Washington and the industry that followed the latter's priorities to the detriment of the American people...

...In general, late capitalism is characterized by the integration of public and private bureaucracies within a (sophisticated) profit-maximizing framework...

...We regret the need for this raise, but there is no other choice...

...The oil companies were protected by the oil import program started by Eisenhower and ended, with some reluctance, by Nixon...

...and it can most emphatically not be the case at all...

...His levy of "windfalls" is really an excise tax per barrel of crude, having nothing to do with profits...

...far from it...

...and they received a number of outright gifts, most notably the multibillion-dollar depletion allowance...

...142 COMMENTS AND OPINIONS...

...it is a system of corporate collectivism...

...with a law that really gets at the enormous, and ill-gotten, federally subsidized gains of the oil industry...

...Of the traditional rationalizations for profit—inventiveness, risk-taking, abstinence from consumption, the hazarding of private monies, and so on—literally nothing remains...

...In what follows, I propose to take up only two specific aspects of this multifaceted problem (and even though I thus limit my subject matter, the treatment will still have to be brief and schematic) : the profits of the empire of oil, and the very structure of the energy industry...

...In the short run, a number of organizations—' the Minnesota AFL–CIO, the Massachusetts State Senate, the Service Employees Union, and possibly in the near future the AFL–CIO itself—have suggested nationalization as the answer...

...It would also be possible to attempt the internal changes that are necessary: participation of the employees in the decision-making process...

...It is much more likely that the government could win actual operating control over such an enterprise than that it could assert its priorities over an entire industry...

...That can be the case...

...For once you accept the present industry as a given, it is extremely hard to escape from the Wall Street Journal's antisocial conclusions...

...In fact, the Journal continued, current profit rates are well below that 15-20 percent figure...

...It was a stirring scene when Senator Jackson hectored the oil executives about their profits, but something more than populist anger is required if we are to deal with a very sophisticated, and very revealing, argument cur rently being developed by the oil companies and their intellectual agents...

...Nixon's proposals in this area are, as usual, fraudulent...

...This capability will, however, require substantial capital investment and large expenditure on research and development...

...That is why I think that those of us who see the need for structural change must be very specific as to how it is to be accomplished...

...It is not enough to try, probably unsuccessfully, to reduce profits or to roll back prices, laudable as those programs are...

...the existing private technostructure of executives normally ends up in charge of the public institution...

...The function of profits, it turns out, is not to make money for the stockholders, pay higher executive compensation to the managers, etc., but to finance further investment so that the needs of America may be filled...

...The oil companies, as Rustow shows, have been the special beneficiaries of extraordinary aid from Washington: they were the chosen agents of American foreign policy in the Middle East and, through the deductibility of all the taxes they paid to the oil-producing nations, were able to evade 50 percent of their American tax responsibilities...

...More practically, the Wall Street Journal's argumentation emphasizes the need for structural change in the entire energy industry...

...But I want to emphasize here the radical nature of our plight—and the need for the Left to be truly radical, which is to say, specific, hard-headed, and informed, in its proposals...

...The Council of Economic Advisers stated in its 1974 Report that The nation has the capability to become selfsufficient in energy production...

...At first glance the profits issue seems simple enough...

...they are also going to require the taxpayers to guarantee their profits...

...Let me simply recall the facts before proceeding to some practical problems...

...The costs of printing, binding, mailing, and everything else associated with publishing a magazine have gone up sharply...

...The problem, if I can go back to a cliche of the sixties, is not a part of the solution...

...Which is one more reason why the present industry has to be basically transformed...

...Socialists must be more candid about the nationalization issue than anyone else...

...Chase Manhattan is, of course, the preserve of the Rockefeller family and thereby the lineal descendant of that Standard Oil trust, which was broken up more than half a century ago...

...Fourth, there is every reason to believe that the companies are uniquely positioned to make the wrong investments...

...Many nationalized concerns behave exactly like, or worse than, their private similars...

...So Nixon proposes a $10 billion federal gift for research and development, and Senator Jackson comes up with his own version of essentially the same scheme...

...And it is urgent to provide adequate unemployment compensation and federally funded jobs to workers displaced by the crisis...

...A Wall Street Journal editorial of February 7 put the reactionary case quite well: The commanding reality [the Journal said] is that if the energy crisis is solved, the world's petroleum industry, which is largely the United States multinationals, will have to invest $1 trillion by 1985...

...There are many, many other suggestions one could make—for the National Energy Policy Commission which the AFL–CIO and the Mineworkers urge, for a Department of Energy as the UAW proposed...

...but my head counsels caution...

...the entire industry makes 11.8 percent on its equity...

...The ideal first step, in my opinion, would be the one urged in Canada by the New Democratic party: nationalize one existing company...

...and so on...

...The oil return is 9.6 percent...

...The money market is not mentioned (in classic theory it was supposed to exercise some kind of an independent check on the judgment of the owners and managers...

...Clearly it isn't in Chase Manhattan's interest to promote rigorously competition between them...

...there clearly has to be a new mode of decision-making...

...The particular internal changes I mention have been advocated by the UAW as part of its public energy program...

...All of this was not simply intolerable from the viewpoint of minimal democratic values...

...The Chase Manhattan Bank estimates that this will require an annual 18% earnings increase as an average over the 19701985 period, a number some economists equate with a 15% to 20% return on stockholders' equity...

...Indeed, the Federal Trade Commission reported in late February that Chase Manhattan "is both the largest shareholder in Atlantic Richfield and the second largest in Mobil...

...The private sector will be willing to make the needed investment only if there is reasonable assurance that returns will be adequate to justify the commitment of resources to long-term investments...

...The oil companies, given their privileged status in the Internal Revenue Code, are past masters at creative cost accountancy...

...This is not to say that I am against public property, in the oil industry or elsewhere in "the commanding heights" of the economy...

...Our new price schedule is now: Single Issue — $2 A Year's Subscription — $8 (Student subscription—$5 still) Two Year's Subscription — $14...

...Half of this will have to come out of industry profits...

...The Wall Street Journal, the Council of Economic Advisers, the industry, and the President now want to further socialize an essentially private decisionmaking process...

...it also resulted, as Rustow shows, in a tremendous misallocation of resources (as in the "Drain America First" policy), which has made us so vulnerable to the present crisis...

...As a result, the democratic and social control of the oil industry is on the agenda...

...The question is, how...

...First of all, there is the marvelous fact that the main authority for the Journal's figures is that well-known and impartial scholarly institute, the Chase Manhattan Bank...

...The European experience with nationalization, as I documented at length in my book, Socialism, has shown that this device is much more complicated—and ambiguous—than the early socialists thought...

...All of these things add up to a shocking capitalist indictment of late capitalism...

...But of even greater moment in this area is the need to cope with the industry's counterattack— in particular the assertion that its profits are, and have been, too low and should be doubled...

...a public review board and an ombudsman to hear challenges from consumers and environmentalists...

...My heart says yes (and I would certainly not foreclose giving political support to such an attempt, particularly if it comes from the labor movement...

...It is typical of current American practice that such an organization presents itself as a disinterested adviser to the government and the people...

...It is quite clear," the United Automobile Workers said in a statement on February 15, "that the interests of both equity and efficiency require a much greater degree of public control of the energy sector than exists at the moment" (emphasis in the original...

...Therefore, in the absence of structural change within the industry that would give the public the opportunity to monitor and contest the corporate definition of profits, I fear that the main beneficiaries of such a law would be the lawyers and accountants hired to evade it...

...Second, the Wall Street Journal here propounds a "socialist" theory of capitalism...

...It is precisely because I am a socialist that my response to that idea is "yes and no...

...It is, however, to argue that the fine print—the precise structural details of the nationalization and the economic setting in which it takes place—is often decisive...

...Even so, would it not be possible to come up 139 To Our Readers: For reasons that you will all know only too well, we are forced to raise the price of Dissent beginning with this issue...

...The issue is incredibly complex, and one must deal with the distortions and waste of a generation of corporategovernmental cooperation to the detriment of the common good...

...Fifth, the companies are not only going to raise that $1 trillion from the consumers...