Bush's War for an Oil Shortage: Priming the Pump
By Wadi'h Halabi
Almost 4 million new cars sit unsold in car dealers' lots. Ford may go bankrupt in the next few years, according to a credit analyst who predicted Enron's downfall. Hundreds of surplus airplanes sit parked. The near-zero valuation of US airline's debt points to a belief that the industry could collapse. The Air Transport Association, representing airline owners and their lenders, has stated that nationalization may be necessary to save the industry (and its debt servicing).
Oil experts believe that with relatively little investment, Iraq could produce 7 to 8 million barrels of oil per day, at a cost of under $1 a barrel. That is triple its average production since 1990, at less than one-twentieth the average world price. "The only force that has been able to restrict Iraqi output," an energy economist told Fortune magazine last March "is the US Navy." If Iraq did produce seven million barrels a day, this would in short order bankrupt oil producers in the US, the North Sea and elsewhere, oil that costs upwards of $6 a barrel to produce. Hundreds of billions of dollars in debt to Wall Street banks would go unpaid.
With fuel prices up sharply in the past year, millions around the US shivered through the winter. As bad as this is, it should be put in perspective. The UN has estimated that over 800 million people around the world are each spending two hours a day or more collecting firewood. Why? They are too poor to afford heating or cooking fuel.
These are but a few examples of the fundamental contradiction that afflicts capitalism. On the one hand, with the help of science and technology, workers are capable of producing everything, from food to fuel to housing to jet planes, to meet innumerable human needs. But the capitalist system is unable to digest the production. Indeed, the capitalists believe that too much has been produced, i.e. too much to meet their sole interest in life: profits.
US corporate profits declined dramatically between 1997 to 2001 and have not recovered. According to a wall street economist "Profits across the whole US economy, as measured in the national accounts, fell again in the fourth quarter of last year-the third quarter in a row of decline after brief recovery." "This may explain why firms are still cutting jobs the Economist reported in March." The same issue brought news of a record $160 billion in defaults on corporate bonds in 2002.
"Overproduction" is ultimately behind the bankruptcy of several major steel companies and airlines around the world; the possible bankruptcy of Ford (and Italian automaker Fiat, partly owned by GM) and other automakers the explosion of bad debts and speculation worldwide; and growing global unemployment and poverty. This can help us understand Wall Street/Washington's aims in both its wars and globalization treaties.
Take Wall Street/Washington's wars on Iraq and on "terrorism." With profits down and bad debts rising, the capitalist class desperately needs to weaken and cheapen labor. Sure enough, one of Washington's main targets has been trade unions. National security was cited as a reason to invoke the Taft-Hartley Act against the West Coast dockworkers' union in its just struggles last fall. Federal aid to the failing airlines (and their leaders) was openly conditional on management attacking airline unions-from attendants to pilots and machinists. Extraordinary cheapening of labor in the industry has ensued.
Capitalist wars invariably bring rising prices of necessities. The aggression on Iraq is no exception. The $10 rise in price of oil that has accompanied that aggression amounts to a $275 billion annual tax imposed by Wall Street on the world. Higher energy prices mean that the average US household will suffer an effective cut of at least $600 in income this year. In addition, higher oil prices loot smaller producers through unequal exchange. It costs an average of perhaps $2.30 worldwide to produce a barrel of oil today (much less in the Middle East).
But oil has been selling for $25 or more for much of the past year. In the meantime, it costs perhaps $2.30 to produce a kilogram of coffee worldwide. But it has been selling at half that. The outcome is Wall Street looting coffee producers, small and large. Furthermore, an enormous amount of debt owed to Wall Street banks is paid back through oil sales. Thus, on a day when Mexico sells a million barrels of oil at $30 per barrel-Chase and Citibank may first collect $25 million of Mexico's nominal revenues to service Mexico's debt to them, leaving Mexico only $5 million.
For China, which is a product of a socialist revolution, higher oil prices amounted to a disruptive $8 billion tax last year. (China is a big oil importer.) Several knowledgeable observers believe that China is an ultimate target of Wall Street/Washington's aggression on Iraq, just as the Soviet Union was an ultimate target in the US-led 1990-91 Gulf War. The war emboldened pro-capitalist elements in the USSR, while demoralizing pro-working-class forces.
The US-led war on Iraq and on "terrorism" is likely to trigger civil and regional wars throughout the Middle East. Those wars could result in sharp decline in the region's exports of oil-if only through US-imposed sanctions and naval blockades. This would limit what Wall Street views as overcapacity in the industry.
Wall Street has a profound interest in expensive oil. There is considerable evidence that the US aggression in Asia is not a "war for oil," but a "war for no oil"; not a war for cheap oil, but for expensive oil, i.e., above all for cheaper labor to try to compensate for declining profits. Expensive oil can also eliminate marginal producers-such as in Japan-placing a cap on overproduction. Furthermore, Wall Street has learned that wars flush billions of dollars from the rest of the world into the United States.
The Wall Street/Washington supported globalization treaties point to similar effects. Two central conditions in those treaties concern protection of "intellectual property" and "freedom of capital movement." Wall Street sees many advantages to protecting intellectual property. In normal times, this can bring the largest capitalists disproportionate income from royalties. In crisis times, intellectual property such as patents can be used to exclude certain manufacturers, putting a cap on overproduction of various commodities. This has happened in the chemical, pharmaceutical, food and other industries.
Freedom of capital movement has similar ramifications. Above all, it makes it easier for Wall Street to weaken in one country against those in another, by moving capital and production from one country to another. Freedom of capital movement also facilitates speculation. The capitalists turn to speculation on a broad scale when it becomes more and more difficult to realize profits from actual production. Today, speculation in currencies and derivatives exceeds $2 trillion per day, almost 20 times daily production of goods and services worldwide.
Speculation can bring economy to a halt practically overnight, as the play on Thailand's currency in 1997 demonstrated. This too can place a clamp on overproduction. The US billionaire investor Warren Buffet recently denounced speculation as "financial weapons of mass destruction." Like war, like Wall Street's globalization treaties, that actually is one of speculation's aims-to limit overproduction and the resulting losses. Federal Reserve Bank chairman Alan Greenspan rushed to defend derivatives.
Far from globalizing production, Wall Street's globalization treaties have facilitated the destruction of production in many countries. NAFTA has resulted in a decline in Mexico's production of food and several industrial commodities. On the other hand, the US share of world production has risen, not declined, since 1990, when many of the globalization treaties began to take effect. The US share of the world industrial production rose from about 23 percent in 1990 to 28 percent in 2001. The US share of world production grew even more if we exclude production in the states created by socialist revolutions. In those states, which today include North Korea, Laos, China, Vietnam and Cuba, 1990s growth rates far exceeded those of the capitalist countries as a group. Note that the concentration of world production in the US makes it easier for Wall Street/Washington to wage war.
Capitalist globalization has not globalized production and prosperity. On the contrary, it has spelled globalization of misery, poverty, hunger, disease, inequality and destruction. Workers' seizure of power is essential to bring about globalization of production, of ecological and human health, of prosperity in peace and equality.
Wadi'h Halabi is a member of the economics commission, Communist Party USA