The State and the Energy Monopoly

Darian Worden
Center for a Stateless Society
May 27, 2010

An advanced society requires energy – in the form of fuel or electricity – to power the devices necessary to sustain it. Politicians and capitalists would not ignore such an opportunity to exert tremendous influence over society, and their efforts to control the market in energy harm the environment and the economy for the rest of us.

Privilege

Benjamin Tucker used the term “monopoly” to describe areas where government intervention allowed some people to monopolize critical economic functions. As Charles Johnson writes [1] Benjamin Tucker described “four great areas where government intervention artificially created or encouraged ‘class monopolies’ – concentrating wealth and access to factors of production into the hands of a politically-select class insulated from competition, and prohibiting workers from organizing mutualistic alternatives.” He identified these as the Land Monopoly, the Money Monopoly, the Patent Monopoly, and the Tariff Monopoly.

Considering the common use of patents to monopolize sectors of economic activity, the patent monopoly ought to be examined here. As Kevin Carson explains in Studies in Mutualist Political Economy:

The patent privilege has been used on a massive scale to promote concentration of capital, erect entry barriers, and maintain a monopoly of advanced technology in the hands of Western corporations…

Patents are also being used on a global scale to lock the transnational corporations into a permanent monopoly of productive technology…

Only one percent of patents worldwide are owned in the Third World. Of patents granted in the 1970s by Third World Countries, 84% were foreign-owned. But fewer than 5% of foreign patents were actually used in production. As we saw before, the purpose of owning a patent is not necessarily to use it, but to prevent anyone else from using it. [2]

The company that owned the patents for nickel metal hydride battery technology, which could have been useful in developing better electric cars, was purchased by oil company Texaco in 2001. Texaco was later purchased by oil company Chevron, who owned the battery patents until 2009. [3]

Whether or not this represents some petroleum executives’ plot to kill the electric car [4], it is certainly a case of using government privileges to monopolize the production of energy. Nobody but Chevron was allowed to experiment with the technical information that Chevron owned during the time its subsidiary held the patents. Chevron used a government privilege to insulate itself from competitive innovation.

There is certainly a demand for alternative energy vehicles. After noting the difficulties that car companies placed in front of eager buyers, and the less-than-enthusiastic advertising for electric cars, reporter Matt Coker concludes:

“No one wants electric cars? No one—except just about everyone who has given one a test drive (including a certain guilty Caddy driver) and got on a waiting list for one or is about to have one taken away from them.” [5]

The excitement surrounding Tesla Motors’ electric vehicles [6] would seem to bear this out. So there existed a significant demand for electric vehicles that is still not being met, which should point to some kind of interference in the market.

Statist Oil

As Sheldon Richman notes [7], petroleum “has long been a top concern of the national policy elite, most particularly the foreign-policy establishment.” Influence over the substance that powers armies, industrial production, and the transportation of the workforce is an immense source of power. Because the goals of politicians involve exercising power over events around the world, it is not surprising that they would want to have a hand in energy production.

It is widely acknowledged that oil was a major consideration in Axis offensives during the Second World War. More recently, war profiteering by Haliburton and fighting in the Niger Delta have involved oil in a major way. World conflicts could bring to mind Mad Max II, but with better equipped gangs.

If more electricity was produced using neighborhood generators or individually-owned solar arrays, it would significantly decentralize the production of energy, leaving less for politicians to preside over and compensate campaign contributors with.

What does the state offer oil companies? Only the state that can claim massive amounts of land by force, and cut deals with companies that rotate employees between corporate and government ranks. Without the power of the globe-spanning offensive US military, it is unlikely that oil fields in Iraq could be secured. Without the state, it is also less likely for a risky prospect like offshore drilling to be accepted by the neighbors of the proposed well – those whose source of production it could threaten. And if they did accept it, they would have greater incentives to focus on safety than the government regulators and BP, neither of whom hold much accountability.

Because government, not local people own the environment, environmental regulations will be based on who has the most political pull, not on who is most immediately affected. And those with the most political pull are those with the power and wealth to give politicians what they need. [8]

The concept of “regulatory capture” is important. As Sheldon Richman writes in The Freeman:

Regulators and the industries they oversee develop mutually beneficial relationships that would appall those who idealize regulators as watchdogs. The rules that emerge from those relationships tend to foster more monopolistic industries.

It took the Deepwater Horizon tragedy to bring out the fact that a single federal agency, the Minerals Management Service, is “responsible for both policing the oil industry and acting as its partner in drilling activities,” writes the New York Times. “Decades of law and custom have joined government and the oil industry in the pursuit of petroleum and profit. The Minerals Management Service brings in an average of $13 billion a year. [9]

Lobbyists are another way that energy companies are linked to the state. When industry representatives are consulted to write government policy, they obviously have their companies’ interests in mind.

Liability caps socialize the risk that drilling companies would be held responsible for in the absence of government interference, raising incentives to engage in irresponsible activity.

A law passed in response to the 1989 Exxon Valdez spill in Alaska [which still harms the area] makes BP responsible for cleanup costs. But the law sets a $75 million limit on other kinds of damages.

Economic losses to the Gulf Coast are likely to exceed that. [10]

No wonder BP took shortcuts and ignored hazards. [11]

BP, the company responsible for spewing millions of gallons of oil into the ocean over the past month, has a noticeably statist history. Looking at the well-cited historical segment of the Wikipedia article on BP, one finds a history of colonialists fighting nationalists for control of resources through covert operations, assassination, and the installation of puppet dictators [12]. For many decades the British government held a majority share in BP until the Thatcher administration sold the government’s shares [13].

Competition

Government reduces diseconomies of scale and socializes costs. This increases the difficulty for small production of new technologies to compete with large production.

As Benjamin Darrington notes in Government Created Economies of Scale and Capital Specificity:

An overriding theme of economic policy is the protection and furtherance of the interests of monopoly capitalist corporations. The production techniques necessary to overcome the multiplicity of grave flaws inherent in gargantuan operations such as these would be uneconomical if not for the government’s constant efforts to pay for them publicly, either by defraying the cost of developing and using of these technologies, or expanding the advantages of large firm organization so that it offsets the massive costs of using this flawed system. The immense mass of privileges granted to the operations of the monopoly corporations generates non-market driven economies of scale and skews competition in the favor of bigger firms.

The capital developed for and, of necessity, employed by these firms has a strong tendency towards certain characteristics including a high degree of use specificity, and geographical concentration. These features would prove a great liability to the companies that use them if it were not for the government’s frequent actions to stabilize market conditions, soak up excess supply with public expenditures, and bailout insolvent corporations when what should be minor economic upheavals turns into catastrophic disaster under the brittle and inflexible capital structure of the corporatist economy. [14]

When government issues grants for alternative energy technology, money will likely go to big, established firms. Sometimes the same companies that collect subsidies for fossil fuels will be the ones who are able to control new technologies through government privilege.

Freedom

An industry relying so much on government privilege, with links to government policy is really just another arm of political authority.

State control locks competition out of the economy, and those who want to share the controls are very willing to play along. Undermining them requires innovation and a desire to decentralize or abolish power entirely. A free economy containing strong, empowered demands for freedom and healthy environment will produce things that satisfy these demands.

Notes

Johnson, Charles “Rad Geek”. “Bits & Pieces on Free Market Anti-Capitalism: the Many Monopolies”
Carson, Kevin. Studies in Mutualist Political Economy, Ch 5, Sec C, pgs 189,192,193
Wikipedia. “Patent encumbrance of large automotive NiMH batteries”
For opposing views on corporate attitudes toward the electric car, see
Hari, Johann, “Big Oil’s Vendetta Against the Electric Car” and Woudhuysen, James. “The Electric Car Conspiracy … that never was”
Coker, Matt. “Dude, Where’s My Electric Car?”
Market Watch “Tesla Beckons to the True Believers”
Richman, Sheldon. “The Goal Is Freedom: Self-Regulation in the Corporate State: The BP Spill”
For an example of government policy hindering environmental cleanup, see Johnson, Charles “Rad Geek”. “The Clean Water Act Vs Clean Water”
Richman, Sheldon. “The Goal Is Freedom: Self-Regulation in the Corporate State: The BP Spill”
Werner, Erica. “Federal Law May Limit BP Liability in Oil Spill.” Note the Wikipedia article on the Exxon Valdez spill.
Granatstein, Solly and Messick, Graham. “Blowout: The Deepwater Horizon Disaster”
Wikipedia. “BP”
Funding Universe. “The British Petroleum Company plc”
Darrington, Benjamin. “Government Created Economies of Scale and Capital Specificity”