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The Capital Times – Madison,WI,USA: Jack Reardon: Oil firm mergers show government’s negligence

Jack Reardon, guest columnist  —  7/09/2007 11:18 am

A recent editorial in The Capital Times congratulated Gov. Jim Doyle for challenging the oil industry’s annual rip-off of raising prices at the start of the summer driving season.

Consumers are indeed mad at this “predictable price-gouging ritual” that fattens oil company profits. We want someone to blame, so why not blame the oil companies?

The Capital Times also lauded Doyle for “understanding that government has a right and a responsibility to force energy firms to become what they are not: responsible to consumers and to the future.”

Really?

The government (at all levels) reneged on this right in the late 1990s by allowing Exxon and Mobil to merge and become the world’s largest corporation; by allowing Chevron to acquire Texaco and Unocal to become the world’s sixth largest corporation; by allowing Phillips Petroleum and Conoco to merge into Conoco Phillips, the world’s 10th largest corporation; and by allowing British Petroleum (now known as BP) to acquire Amoco, Sohio and Arco to become the world’s second largest corporation.

Doyle is right, however, to argue that “the only reason oil companies increase prices is because they can.” Of course they can! As a result of the merger activity, three of the world’s four largest corporations are oil companies with combined annual revenue of $909 billion; and six of the world’s 12 largest corporations are oil companies with combined revenue of $1.4 trillion dollars — equal approximately to the goods and services produced by the United States in one year!

The government fell asleep at the wheel, so to speak, during the late 1990s, lulled into complacency by cheap oil prices and the industry’s argument for achieving national energy security via industry consolidation.

The government also reneged on its responsibility to enhance consumer and future welfare by allowing oil companies to venture uninhibited into hydrogen, wind and solar power, thereby becoming major players in tomorrow’s energy. BP and Royal Dutch Shell, for example, are leading solar companies, while Royal Dutch Shell is a leader in wind power.

Oil companies are in the enviable position of benefiting from higher oil prices, while watching demand grow for alternative energy, of which they increasingly own a greater share.

Oil companies flex their powerful muscles in a number of arenas — raising prices is only one of them. Most importantly, oil companies influence national energy policies (or lack thereof) and lobby to continue our fossil fuel addiction while deciding when (and if) to make the transition to renewable energy.

Losing democratic control of our energy policy is the true cost of not paying attention to the oil industry’s recent consolidation.

If Doyle and other politicians intend to pressure Congress to examine “why spikes in gas prices occur when there are no geopolitical or weather-related events to justify them,” let Congress start with the industry’s merger record in the late 1990s and then follow up with the industry’s record of acquiring renewable technology.

While taxing profits and conducting public investigations might make us feel good, it won’t reduce oil industry profits; it won’t make the industry more competitive; it won’t diminish the power of oil companies; and it certainly won’t prevent the “annual price-gouging ritual.”

Citizens of a democracy have a right to shape their economies, especially energy policy since it affects us in so many ways. If we forfeit that right we have no one to blame but ourselves.

We need innovative solutions from our government officials as we shift away from fossil fuels, not after-the-fact lamentations and feel-good fixes.

Jack Reardon of Eau Claire teaches economics at the University of Wisconsin-Stout.

http://www.madison.com/tct/opinion/200615

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