Now this is exactly why we need to Nationalize the OIL companies! Imagine Socialized Power Companies as well.
Name the biggest oil company in the world. ExxonMobil? British Petroleum? Royal Dutch Shell? In fact, the 13 largest energy companies on Earth, measured by the reserves they control, are now owned and operated by governments. Saudi Aramco, Gazprom (Russia), China National Petroleum Corp., National Iranian Oil Co., Petróleos de Venezuela, Petrobras (Brazil) and Petronas (Malaysia) are all larger than ExxonMobil, the largest of the multinationals. Collectively, multinational oil companies produce just 10% of the world's oil and gas reserves. State-owned companies now control more than 75% of all crude oil production.
The power of the state is back.
As the Cold War stumbled to a close, the belief that governments could effectively micromanage national economies and generate prosperity seemed dead. Communist China had been experimenting with capitalism since 1978. The massive Marxist bureaucracies of the Soviet Union and Eastern Europe had buckled under the burden of unsustainable economic systems. The dynamism and market power of the U.S., Western Europe, and Japan—fueled by private wealth, private investment and private enterprise—seemed to have fully established the dominance of the liberal economic model. Governments privatized companies and pensions as Exxon, Wal-Mart, Toyota and Microsoft feverishly drew up global expansion plans.
But public wealth, public investment and public enterprise have returned with a vengeance. An era of state-driven capitalism has dawned, in which governments are again directing huge flows of capital—even across the borders of capitalist democracies—with profound implications for free markets and international politics.
China and Russia are leading the way in the strategic deployment of state-owned enterprises, and other governments have begun to follow their lead. In defense, power generation, telecoms, metals, minerals, aviation and other sectors, a growing number of emerging-market governments, not content with simply regulating markets, are moving to dominate them. Fueling state-corporate activity is a new class of sovereign wealth funds, investment vehicles established by states with large foreign currency holdings that are designed to maximize the state's return on investment.
States use these tools to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival). This can distort the performance of markets. State-run companies and investment funds are also burdened with the same bureaucracy, waste and political cronyism that burden the (often authoritarian) governments that control them.
Within the borders of state capitalist countries, foreign companies and investors find that national and local rules and regulations are increasingly designed to favor domestic firms at their expense. Multinational companies now find themselves competing as never before with state-owned companies armed with substantial financial and political support from their governments.
In December 2006, the Russian government informed Shell, Mitsubishi and Mitsui that it had revoked their environmental permits as project managers for the $22 billion Sakhalin 2 project, forcing them to halve their respective holdings and give Gazprom, Russia's natural gas monopoly, a majority stake. This instantly wiped out 2.5% of Shell's global reserves. In June 2007, the private Russian-British consortium TNK-BP agreed under pressure to sell Gazprom its 63% stake in Rusia Petroleum, the company that held the license to develop the huge Kovykta gas field in eastern Siberia, and its 50% share in the East Siberian Gas Co.
This is how Gazprom became the world's largest producer of natural gas, with rights to about one-quarter of the world's known reserves. Gazprom provides the Russian government with control of one of the country's most valuable resources. It also provides the Kremlin greater political leverage inside energy-poor Ukraine and other neighbors of Russia.
Russia holds no monopoly on the recent wave of resource nationalism. In 2006, Ecuador accused U.S.-based Occidental Petroleum of espionage and environmental damage and ordered troops to seize its oil facilities. In 2007, the Bolivian government nationalized the country's oil and gas fields. Kazakhstan suspended development of the Kashagan oil field in the Caspian Sea, then the world's largest new crude oil discovery in many years. By 2009, state oil company KazMunaiGas had doubled its stake from 8% to more than 16% by drawing shares from six privately owned members of the consortium.
In coming years, this trend is likely to be repeated many times in other economic sectors. In 2009, Coca-Cola was hoping its lead role as a sponsor of the Beijing Olympics the year before would warm official attitudes toward its $2.4 billion bid for Chinese juice maker Huiyuan. The Chinese government ruled that the proposal violated antitrust legislation, and Coke came away empty-handed.
The financial crisis and global recession have made it much more difficult for those who believe in free-market capitalism to make their case to those who don't. China's strong economic rebound, America's high unemployment and financial volatility in Europe have all cast doubts on the free-market model.
U.S. policy-makers might respond to these challenges by building new barriers to foreign investment, particularly from state-owned companies. This could provoke a nationalist backlash within some of these emerging-market countries. As their share of global markets grow, countries that rely on state capitalism to extend their economic and political influence may begin to do business almost exclusively with one another, at the expense of multinational companies.
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kennymotown
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