When a direct link exists between governments, private individuals, corporations - and select powerful families gain influence over those governments and its appellate court systems - unbridled conglomerates and monopolies will emerge to interrupt so-called free markets.
This report concentrates on one product - oil, an underlying component of all products, if by no other reason than delivery. Few tangibles are transferred without the use of oil, and we will attempt to draw reasons within history and the distribution chain of oil, to conclude why Mancur Olson's book, The Logic of Collective Action, is applicable. From the outset, I will argue that Olson's theory of groups, applies to any discussion of so-called free markets, or any society, grounded in greed and serving the privileged.
Olson never mentions oligopsony (many sellers to a very small number of buyers) even once in his book. Yet it is fundamental to my argument about the processes that unfairly dictate oil prices. To clarify, the oligopsony, as referenced here, is not about the retail sale of gasoline. Rather, it is about the limited groups buying raw crude and the select few who refine it into gasoline. From here, the process reverses, and an oligopoly creates intentional imperfections within the market and engages in price-fixing, or more correctly, collusion - negating legitimate economic theories of supply and demand.
Therefore, the rational logic of self-interest that Olson suggests, often leads to corruption of both market and government. It supports his theory of self interest and is, most likely, true. It has, however, lead us from a single refinery in 19th century Ohio, to the invasion of Iraq. It is important to outline here how this could happen from a technical standpoint of Olson's theories, prior to getting into the history of American public energy policy and the nuances which lead to the actual events.
Specifically, Olson's division of three basic group categories (Page 48), the "privileged group" proficient at organization and goals, attributed to its limited size, already have influential operatives (lobbyists and politicians) at their disposal. And, because any individual will greatly benefit by "attaining the aggregate goal," who, in this instance, was willing to bear the requisite costs in order to achieve it? That individual was John Davison Rockefeller.
The next group Olson outlines is the "intermediate group." Often successful in gaining a public good (collective good) but must be mindful of the social incentives (Page 60-64) that are entailed by all participating, as the cost of the goal is prohibitive to any certain individual members. This group figures prominently in Olson's theories - but has little relationship to advancing my thoughts.
Lastly, Olson refers to the "latent group," (a delayed effect between the initiation of policy and its affects becoming widespread and noticeable), which I interpret to mean, you and I, the public in general. The latent group is subjected to the whims, mandates and coercions of governments, big business and world markets. Although they represent the target marketplace for the "collective good" and in some ways hold the power to control in a so-called free democracy, they, in actuality, exude little cohesion and even less organization. This group is so large that they share only certain common goals, while having too many individual differences and goals to properly function as a cohesive unit. Moreover, Olson states that, â€œin any large group everyone cannot possibly know one another, and the group will ipso facto (Latin: "by the fact itself") not be a friendship group, and the participation of one member in such a large and diverse group, "will not matter much, one way or another" (Page 62).
Two things will come out of larger groups: those who "free ride," i.e., not contributing "sweat equity," or costs of a goal because they can avoid doing their share hiding behind the anonymity of the sheer size of the group. Also, latent groups tend to produce a "by product" of the large pressure groups, often in the form of trade unions or citizens' groups that are already organized for some other purpose (Page 132-34). That, in some respects, is similar to why the "privileged group" is organized. The difference being the latent group is generally reactive, whereas the privileged group is usually proactive.
For the sake of this report, let's examine why oil is not a commodity. Many define a commodity as a product where the producer has no control over price fluctuation. This, of course, is true with many goods like cotton, corn, sugar, pork bellies and myriad of other non-essentials traded on a free-market exchange. However, economic law does not apply to essentials such as human body organs; human blood; clotting factor; certain medicines; and essential hormones. The price of these products remains predicated on supply versus demand, but there is a noted difference in the operation of free markets as well as black markets. But a false demand can be created, when supply is unscrupulously manipulated. An obvious example is the paradigm employed by De Beer's Diamonds and its control over every aspect of its industry including harvesting, production, worldwide distribution and its "fair-trade" retailing practices.
It's here that Standard Oil comes into play. One might say much like our Constitution, Bill of Rights and government in general, Standard Oil is an American institution that does not abide by policy - it sets it, and has done so, for nearly 100 years. As early as August 1907, Standard Oil lost a lawsuit, accompanied by a $29 million fine, as it began the appeals process. To this day, the company has yet to pay that hefty fine.
Later, Kenesaw Mountain Landis, one of our nation's most respect jurors, set to become commissioner of Major League Baseball, presiding over the Standard Oil case said, "you can't collect money from these millionaires," after his findings and fines were repeatedly overturned on appeals. Coincidently, Exxon/Mobil, the largest of myriad Standard Oil companies worldwide today, still has not paid the $5 billion Exxon Valdez fine from an accident they were responsible for 18 years ago (March 24, 1989). The 9th U.S. Circuit Court of Appeals continues to send it back to Judge H. Russel Holland. In the latest ruling Holland, like Landis, went against the appellate court, setting the new figure at $4.5 billion plus interest which brings the total now to almost $9.4 billion, which has been added to the long list of unpaid debt. In fairness, it should be noted that "the company was willing to pay $25 million," and claims to have spent $3 billion cleaning up the mess in Prince William Sound, according to a report by MSNBC News Services.
In fact, between 1897 and 2007, Exxon and its principals have been engaged in one legal battle after another - everything from the Interstate Commerce Act, the Sherman Anti-Trust Act and hundreds of public and private lawsuits, with little results before finally losing in the U.S. Supreme Court, which lead to Standard being broken up into 34 separate entities on May 15, 1911.
It is germane because it demonstrates how those in the privileged group - that the collective good amounts to so much, that even a single member of the group - is willing to pay the entire costs of the goal (Olson 50-51). In this case the single member of the group was Standard Oil and Rockefeller - who still owned about 25 percent of each of the 34 former Standard Oil companies. The difference was each had its own board and trustees, as it was reasoned that more companies make for better competition. But even under this ruling, Standard grew bigger and more controlling. The privileged group of oil underlings got more than a free ride, they were battered by the monopoly-that-still-existed and most were purchased, one-by-one, until almost every name today - even Shell, through its Pennzoil subsidiary - has a direct connection, or is a wholly-owned, or partially-owned joint venture with Standard Oil.
In avoidance and/or to settle other lawsuits, Standard became Esso, which begat Exxon, who recently purchased Mobil, morphing into Exxon/Mobil. We still have not accounted for Amoco, Sohio, BP, Atlantic/Richfield and Marathon. They are all in Standard's family tree, albeit with separate corporate governance and boards. Of course, that only accounts for some of their oil dealings, and only in the USA. They are also connected with financing, ownership and/or construction of the World Trade Center (important connection to why that building got bombed), General Electric and Rockefeller Center, to name just a couple high-profile projects. When you read about the $10 billion per quarter earnings of this unstoppable group, that accounts for only Exxon/Mobil earnings. Not the Chevrons. Not the Pennzoil's. Not the BP's, nor Amoco's, either.
Of course, this is a global economy. These companies all have separate sister companies in every OPEC nation on earth and many others. Exxon's joint ventures with the Saud family began in 1926, in Germany. They were finalized on May 29, 1933 under the name Aramco, an acronym for Arab American Oil Company, which was wholly owned by Standard Oil of California. They traded names and became California-Arabian Standard Oil Company in 1936, after some legal and physical threats to members in the "family." That was the year others in the conglomerate formed Texaco, who merged with Standard of California and became the California-Texas Oil Company. Aramco is highly involved with the Bush administration and the invasion of Iraq, as will be closely outlined below.