Standard Oil Redux
Oil Monopolies Return and Consumers Suffer
by Russell Mokibar and Robert Weissman
The startling concentration of economic power that has
resulted from the U.S. merger wave of the last several years is going to require
new levels of government intervention in the marketplace.
Case in
point: the oil industry and skyrocketing gasoline prices — now over $2.00 gallon
in parts of the Midwest.
Vigorous antitrust enforcement may be
preferable to government regulation. But government regulation of industry is
certainly preferable to industry regulation of consumers and the marketplace.
A year and a half ago, when Exxon and Mobil merged in an effective
effort to begin restoration of John Rockefeller’s Standard Oil, the conventional
wisdom was that the merger would not affect gas prices.
Now,
conventional wisdom is rapidly changing.
With oil prices skyrocketing
nationwide, prices spiking in the Midwest and industry profits reaching
stratospheric heights, even the Clinton administration has called on the Federal
Trade Commission to investigate whether the oil industry is illegally colluding
to raise prices.
The oil industry, as always, has a series of
rationalizations for the sudden jump in gas prices.
OPEC has cut
production and world prices have risen, say industry representatives, even as
global demand is increasing.
New requirements to sell cleaner-burning
gasoline have boosted prices, the industry complains, and led to special
difficulties in the Midwest, where refiners use ethanol instead of alternative
blending components. That’s true, but the Environmental Protection Agency —
noting that the oil
industry has had six years to prepare itself for the
implementation of cleaner fuel standards that the industry helped negotiate —
says the cleaner-burning gas should only cost 4 to 7 cents more per gallon.
The industry also complains that a Unocal patent on a means to
formulate cleaner-burning gas has impeded the use of the most efficient gasoline
formulation techniques. That may be, but it doesn’t begin to account for the
huge price increases, the price spike in the Midwest, or the industry’s outsized
profits.
It is hard to escape the conclusion that some significant
part of the story involves industry profiteering — with the oil giants using the
input cost increases from OPEC and the reformulated gasoline standards as
cover to pile on additional charges.
Whether these extra charges
were the product of collusive agreements or “conscious parallelism” can only be
determined through an investigation that involves close questioning of key
industry executives and careful review of industry documents.
Either
way, the profiteering is a product of industry concentration. Fewer industry
leaders (and there certainly are fewer, following the recent mergers of Exxon
and Mobil, BP and Amoco and BP Amoco and ARCO) make price-fixing much easier,
whether done through overt and illegal agreement or follow-the-leader pricing
without illegal collusion.
There may be legitimate public policy
rationales for raising gas prices — notably, to spur conservation — but if so,
such price increases should be government mandated, with revenues used for
appropriate public purposes. They should not be the result of industry rip-offs
and profiteering.
The first and most pressing need is for a windfall
profits tax, to put an end to the industry’s gain from consumer’s pain due to
OPEC and other input cost increases.
A second and relatively modest
step would involve the issuance of a compulsory license to require Unocal to let
competitors use its clean-burning gas patent. A patent monopoly cannot be
permitted to block implementation of effective technologies to clean the
environment.
Representatives Dennis Kucinich, D-Ohio, John Baldacci,
D-Maine, Frank Pallone, D-New Jersey, and Tom Barrett, D-Wisconsin, have
introduced legislation to make this possible.
Finally, it is time to
think seriously about price controls. Richard Nixon did. The oil giants clearly
do not have complete control over gas prices, but they do have the ability to
set prices above competitive rates. Why should industry regulate the market
instead of democratic government authorities?
There are many needed
measures on the demand side — to increase energy efficiency and facilitate a
rapid transition to solar and other clean energy alternatives — but these are
not a short-term solutions. Only direct government regulation will stop the oil
oligopoly from persisting in its price gouging.