Monday, July 07, 2008

oil profits are good.

There's a common misconception that oil profits are a very, very bad thing.

This is in spite of a general acceptance of the idea that corrupt governments use oil revenues to oppress their people. Nigeria is a great example.

The thing is, if profits from oil went freely to private industry, they would be reinvested in an attempt to maximize wealth further. Sure, some rich people would get richer, but they usually employ an awful lot of people to get there. It's fairly likely that more investment would occur in a great deal of places where development is sorely needed.

When governments control oil and when oil companies need to use their profits to bribe governments to allow them to stay in business or to lobby governments to squash competition, governments can use that money for whatever they want - and all too often what they want is to oppress people. Whether it's through outright war and violence or through laws that restrict the way people and businesses operate in their country, this oppression the stable development that many of these countries need in favour of welfare and aid programs dependent on the whims often unstable regimes - if those living under the government are lucky.

Call me crazy, but I'll take the profits.

(cross-post to Bureaucrash)


Anonymous said...

It's a sad commentary, after watching what happened to the Soviet Union and the Eastern European countries under a socialist system, that some people still think government control of all aspects of economic life is beneficial to anyone but the elite few. Maybe they should ask the Chinese people if they would like to return to the old style Marxist system of rigid state control of the economy.

zolton said...

Wow that was incredibly linear.
"The thing is, if profits from oil went freely to private industry, they would be reinvested in an attempt to maximize wealth further."
Yes short term profit gain for a few individuals, at the cost of all other individuals and the planet.
In addition the people who own the means of production stifle new technologies and buy out governments outright so that they retain control. Now whats more important that persons materialistic flash in the pan existence or the continuation of the species?
Call me crazy but I would rather understand what I am doing rather then just be a metaphysical tool of a system.
Yes I am a rational individual as opposed to being a mouthpiece to a system. Call me crazy!
Your example of Nigeria is a good one, I am surprised that you didn't show how private industries act in these same area's! The behavior is just as bad if not worse as it is in Nigeria.

Fortitudine said...

Zolton said:

"Yes short term profit gain for a few individuals, at the cost of all other individuals and the planet."

Zolton, you're wrong on two counts here. Firstly, it does not matter in the least from a normative or practical stand-point that some individuals profit while others do not. Practically, businesses could not function if profits were only allowed (a la John Rawls) when the government deems a specific endeavour favourable to society at large. Oil companies invest incredible amounts of capital, assume great financial risk, and earn every penny of the exorbitant profits they make. Who are you or the government to prevent them from doing so? I take it by your sneering use of the word "profit" and your perfunctory invocation of the "planet," however, that you object to profit and industry out of "principle" so I don't expect you to understand and I won’t waste my time explaining the issue further.

Secondly, profits made by oil companies directly benefit the general population of Canada, not merely the individuals earning those profits. The free market operates according to supply and demand. Evidently, the current price of oil does not reflect supply and demand which means that something is distorting it. The answer lies, as it does with most of our problems, with the government. Far-reaching regulation of oil by the Canadian and American governments, particularly in the way of highly restrictive drilling policies, have made it very difficult for domestic companies to compete with major foreign oil exporters. Our economic freedoms have been sacrificed to the mob for vague and unscientific concerns regarding the planet. Does this make sense? Does this benefit the whole of society rather than a few profit-earning individuals? The government’s policies are a major reason that oil prices are as high as they are today. It has forced millions of Canadians to abandon their vehicles making it harder to get to work and, for some, impossible to live like they could just a year ago.

Deregulation would indeed generate very high profits for the oil industry, but it would also lower the price of gas considerably. Gas has become prohibitively expensive for many Canadians and a return to normalcy would prove immeasurably helpful in terms of the general standard of welfare in Canada.

When the oil industry profits, Canada profits. Deregulate and everybody wins.