Oil and Overproduction
dmsch at attglobal.net
Sat Jan 18 04:21:19 MST 2003
Hoping to stimulate more discussion about overproduction, I offer the
following, including a brief of analysis of oil which I have already
I understand the risks I take in doing this, and indemnify all those who may
employ a skewer, the sword, and the shotgun in criticism:
Backward Looking Backward
Two years after the price of oil had risen threefold, the mythical middle
class American consumer went about Christmas shopping with a pocketful of
fear where fistfuls of greed had been. Above the virtual fireplace
Christmas stockings hung half-full, or half-empty, depending on your
exposure to technology stocks. Pictures of the modern father Christmas,
Alan Greenspan, were turned face to the wall, his equivocations no longer so
brilliant, his obscurantism no longer profound. Money really does change
everything, but not as much as the lack of money does. The US economic
growth of the 1990s was coming to an end, with a big whimper.
Meanwhile, two presidents prepared to move north, one from, one to
Washington, DC One president was getting out, and with a full tank of gas.
The other checked the oil. Both were smiling.
It had taken longer than anyone, including the backers of OPEC, had
expected; it being the rearranging of profits, the transfer of money through
the mechanism of price, specifically the price of oil. But better later
Finally, the economy had received the message, a message delivered in
undeniable finality in December 2000 when the US Supreme Court installed
Ronald Reagan's love child as the new president. Capital anointed the
forehead of its new spokesperson with $35 dollar a barrel oil.
US capitalism, after eight or seven or six years of expansion had
overproduced itself right into a declining rate of profit. Suddenly, or
not, the previous triumphs of globalization, the 2.8 billion people living
on less than $2 a day, the thousands of abandoned, homeless, gang-pressed,
militarized, armed, slaughtered 14 year olds, the shuttering and raffling
off of the Eastern European economy, the thousands of women workers gluing
Nikes, printed circuit boards, airplane parts in thousand of maquilladoras
strung from sea to shining sea, more thousands working as sexual laborers,
the hundred civil wars, the refugees, the camps and camp followers, the
massive expansion of corporate and consumer debt, changed from being
servants in the hallway to wolves at the door. Fear caught and surpassed
Still and always an automobile and oil economy, the US found the picture of
its future in those piles of disintegrating Firestone tires, in those
hundreds of overturned Ford Explorers, wheels spinning in the air, spraying
rubber like shrapnel across the economic landscape.
What appeared as optimism was really nostalgia. The bourgeoisie looked
ahead anticipating a return to yesterday. Last year the bourgeois order
proclaimed "The best is yet to come." This year the party theme was "Here
and Gone." What imagined itself to be growth and development was the mask
for contraction and retrenchment. The future wasn't anywhere near as rosy
as yesterday, and yesterday hadn't been all that rosy.
Was there good news to be had at the end of the century? Kofi Annan
thought so as he presented his panel to consider ways to help poor
countries. Was there bad news? The poor countries knew so as the panel was
headed by the former president of Mexico, Ernesto Zedillo, and included
Robert Rubin of the US, and Jacques Delors of France.
The US economic expansion of 1992-1999 had been fueled by the demand of
capital for capital, by production for production. In 1992, annual US
corporate capital expenditures were only five percent above their 1985
level. In 1998, the capital expenditures were 75 percent above the 1993
level. The average annual rate of growth (AARG) for private fixed
nonresidential investment exceeded the AARG for private consumption.
The rate of profit, at 5.5 percent in 1991 measured 10 percent in 1998.
Between 1985 and 1992, US corporate profits had grown 40 percent. Between
1992 and 1998, US corporate profits expanded 90 percent. Net sales in
manufacturing increased forty percent while operating profits increased
No general increase in any economy is ever, or can ever be, an even
distribution. Imbalances, disproportion, different rates, are inherent and
essential. The market is the very expression and, for the bourgeoisie,
resolution of this unevenness. Within the generalized expansion of the
1990s was a significant, and productive, disproportion. Sales of new
equipment for manufacturing had increased 30 percent. Sales of new
equipment for communication and transportation increased 40 percent, and
within this specialized category, sales of communications equipment had
increased 60 percent, while the annual value of shipments in communications
equipment grew by 90 percent during the seven years..
Compensation for workers, however, remained essentially unchanged,
declining actually when calculated in 1982 dollars. Unit labor costs for
the entire manufacturing sector declined for this period while output per
hour grew. But no output per worker-hour grew in any industry like it grew
in the communications sector. There the increase measured 89 percent.
Communications and transportation are the means for capitalists to bring
the commodity to market, to feed the objects of production into the stream
of circulation. Every improvement in these sectors has its origin and goal
in reducing both the costs and the time of circulation. In so doing,
capital is able to reduce the elapsed time of its transformations from money
to commodities to more money, thus preparing itself ever anew to renew its
pursuit of profit. Reducing the "dwell" also allows capitalism to balance
the disparities in the different rates of return in the economy, creating
additional cash not just for production in one sector, but also creating a
pool of funds for lending to the other sectors. An expansion of production,
accompanied, nursed, by an improvement in the means of circulation, is the
means for an expansion of credit. Speculation, excess, liquidity, bubbles,
exuberance, rational and irrational, are the offspring and midwives of
The unevenness of production is supposed to be balanced through the
functioning of the market. Through this mechanism, the production of
capital is subsumed under and superseded by the reproduction of the entire
system of capitals. The improvement of the techniques of production in any
one sector may lead to an overproduction in that sector. That
overproduction is the specific expression of capitalism's uneven
development. Improvement in the means of circulation, reductions in the
time and cost of circulation, inevitably yields overproduction for the
economy as a whole. This combined overproduction is the development of
capital beyond its ability to maintain its own expanded reproduction.
Profit falters in its ultimate task of making it all worthwhile for the
capitalist. Overproduction is the uneven and combined development of
Production, consumption, circulation, investment cease to exist, or rather
establish existence only as moments in the total reproduction of capital.
And as capital reproduces itself, its very mass, so essential to the overall
reproduction, the overall penetration and expansion of markets, reduces the
rate of acceleration of the transformation, the rate of profit. Liquidity,
yesterday in excess, vanishes, literally, and literally overnight. Trade,
praised as the engine driving economic democracy, exposes itself as warfare
in a business suit. All economics reveals itself to be the economics of
Prior critical moments in the US and global economies were heralded in the
oil shocks of 1973 and 1979. The current slowdown is anticipated in the
problems confronting the oil industry. Between 1973 and 1998, total crude
oil requirements of US domestic refineries increased only 16 percent.
However, the proportion of domestic to imported inputs changed from 3:1 to
3:4. Between 1993 and 1998 alone imports increased by 25 percent.
More important are the financial flows experienced by the oil industry.
For 42 major international petroleum companies, net annual income between
1973 and 1980 increased from 11.8 billion dollars to 32.9 billion only to
collapse to 19.4 billion in 1985 and collapse again to 12.1 billion in 1992.
In 1993, net income began a steady increase, reaching 39.7 billion in 1996
before declining slightly to 39.4 billion in 1997. The growth in net income
during this period included a real increase in oil prices of 10 percent.
Still, in constant 1992 dollars, the price of oil in 1997 was only forty
percent of the 1980 price. Extensive technological innovation in oil
extraction techniques reduced the costs of production for the industry and
yielded greater profits. Annual capital and exploratory expenditures by
these companies had previously peaked in 1980 at 62.1 billion dollars. The
amount had fallen to 51.5 billion by 1994 and then accelerated to 81.5
billion dollars in 1997. As a consequence, the ratio of net income to total
average capital in 1997 was 11.4 percent, below the 12 percent mark of 1973
and the 17 percent level of 1980. Oil was on the downside of the rate of
profit again, after the ten year period, 1985-1995, of single digit returns,
and only two years of double digit returns. The markets were no longer able
to keep up with production, providing a rate of return capable of sustaining
reproduction. The oil bourgeoisie saw the future as it had been in the
past. If OPEC hadn't existed, the bourgeoisie would have created it. OPEC
did exist and the bourgeoisie still had to recreate it.
The rapid increase of the price of oil provides the oil industry with an
offset to its problems of reproduction by, in effect, transmitting that
failure to all the capitals in the market. Expanded reproduction becomes an
impossibility. Since the predicament of capital is international in its
origin, every attempt at resolution presses forward, and downward, on an
Price, more precisely, the disequilibrium in price is one mechanism a
particular capital employs to preserve itself in its own failure to sustain
its reproduction. Yet, this mechanism propogates the failure of capitalist
reproduction. More mechanisms are employed by capital as a whole against
the sum of its parts. Among these techniques are interest rate fluctuations,
forced purchases of military equipment, and currency speculations. All
serve to flush wealth from less developed, poor capitals, to the more
developed and powerful capitals. The extraction of wealth in all its
manifestations requires increasing and intensifying levels of poverty. Wage
rates are reduced by limiting the level of payment and the breadth of
employment. More than wages are slashed as capital turns on every
manifestation of its previous expansion. The decade of the 1980s is known
throughout Latin America as the "lost decade," as the meager progress of the
previous two decades was burned for firewood in the ovens of debt service.
Simultaneously, that financial austerity was part of an assault on living
standards, and the living, that spent money lavishly on death squads and
counterrevolution in Central America. It's always about the money, the
money is always about property, and property is always about class.
Imagining an end to history, the capitalist class sees no solution to the
problem of reproduction other than the reproduction of the problem on a
greater, more petty, more vicious scale. Progress is always a backward
movement for capital.
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