This groundbreaking book, from a distinguished sociologist, examines the profound adjustments required to live in a world where oil is no longer an easily-available energy source. It considers what societies that are powering down would be like; what lessons can be learned from the past; will rationing systems or the market allocate scarce energy? Can virtual worlds solve energy problems? What levels of income and wellbeing would be likely?
Urry analyzes how the twentieth century created a kind of mirage of the future that is unsustainable into even the medium term and envisions the future of an oil-dependent world facing energy descent. Without a large-scale plan B, how can the energizing of society possibly be going into reverse?
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About the Author
John Urry is a Distinguished Professor of Sociology at Lancaster University.
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Societies Beyond Oil
Oil Dregs and Social Futures
By John Urry
Zed Books LtdCopyright © 2013 John Urry
All rights reserved.
OIL AND THE CRASH OF 2007–08
Oil and money
It is often said that money makes the world go round. And there is something in this as trillions of dollars, euros, yen, renminbi and the major currencies circulate around the world at dizzying speed. Although once that money was physically moved, most movement now is virtual, taking place on computer screens located in banks, insurance companies, trading rooms, multinational companies, accountancy firms and so on. This digital movement of money dwarfs the income and resources available to individuals, most companies and even most countries. So there is a very powerful force central to the 'globalizing' of the contemporary world.
But this book shows that there is another powerful force in the world, that of oil. This chapter is concerned with how money and oil intersect. First, the oil exploring, producing and using industries are a huge economic enterprise containing many of the world's largest and richest companies. This 'carbon capital' consists of Western-based oil 'super majors' (such as ExxonMobil, which grew out of Rockefeller's Standard Oil), state oil companies mainly found in producing countries (such as the world's most valuable company, Saudi Aramco), car and truck producing corporations (Toyota being the world's largest up to 2011), huge engineering and road construction companies (such as Bechtel), and the wide array of corporations providing services to car drivers and passengers (such as Holiday Inn or McDonald's).
Further, there is much intertwining of new kinds of finance with supplies of oil. Oil is a key commodity speculated upon in financial markets. Its price movements stem as much from this speculation as from changes in the supply and demand of oil for transportation and manufacturing. A major report for Lloyds of London shows that speculation destabilizes supply and price and further reduces energy security. There are now over seventy-five crude oil financial derivatives where there was one just fifteen years ago. A derivative is a financial instrument whose value depends on other, more basic, underlying variables such as, in this case, the future price of oil. This report suggests that the extensive growth in financial trading in oil is driving oil prices higher and making them more unstable. Oil prices are exceptionally sensitive to even small changes in demand.
It might be thought that the oil problem is something for the future. However, this chapter shows that oil supplies are already having major economic and social consequences. The world economic crash of 2007–08 onwards was partly brought about by oil shortages and price increases. The speculative building and risky funding of extensive tracts of 'marginal' suburbs and related shopping and leisure developments within the USA depended upon cheap land, mortgages and petrol, which made it seem that the continued upward movement of house prices was inevitable. But these began to unravel when oil prices dramatically soared in the mid-2000s. How did cheap oil and cheap mortgages produce such an economic and social nightmare, first on Main Street, USA, then on Wall Street, and then throughout much of the world?
Crucial here is neoliberalism. This became the dominant if not universal global orthodoxy of economic and social policy from around 1980. The doctrine spread from its birthplace within the Economics Department at the University of Chicago through the huge influence of what are sometimes known as the 'Chicago boys'. Even as early as 1999, Chicago School alumni included twenty-five government ministers and more than a dozen central bank presidents scattered around the world.
Neoliberalism is a doctrine and set of practices that assert the power and importance of private entrepreneurship, private property rights, the freeing of markets and the freeing of trade. These objectives are brought about by deregulating private activities and companies, privatizing previously 'state' or 'collective' services especially through low taxes, undermining collective powers of workers and professionals, and providing conditions for the private sector to find ever-new sources of profitable activity. Neoliberalism especially minimizes the role of the state, to readdress the balance as it sees it between the 'bad' state and 'good' markets. Matt Ridley, the former boss of UK bank Northern Rock, which had to be rescued by the UK state in early 2008, writes of how government is 'a self-seeking flea on the backs of more productive people of this world'!
Neoliberals hold that states are always inferior to markets in 'guessing' what should be done. States are seen as inherently inefficient and easily corrupted by private interest groups. Markets are presumed to be 'natural' and move to equilibrium if unnatural forces or elements do not get in the way. Neoliberalism elevates market exchanges over and above other sets of connections between people. The 'market' is the source of value and virtue. Any deficiencies in markets are the result of their imperfections.
However, states are often important in eliminating 'unnatural' forces, destroying sets of rules, regulations and forms of life that slow down economic growth and constrain the private sector. Sometimes that destruction is exercised through violence and attacks upon democratic procedures, as with the first neoliberal experiment in Augusto Pinochet's Chile beginning in 1973. Thus on occasion the 'freedom of the market' is brought about through what its architect Milton Friedman terms 'shock treatment', the creation of an 'emergency' which enables the state to wipe the slate clean and impose sweeping free-market solutions.
These occurred from 1973 onwards in Latin America, Reagan's USA, Thatcher's Britain, post-communist Russia and eastern Europe, 'communist' China, post-apartheid South Africa and much of the world. The state is central to what global analyst Naomi Klein terms 'disaster capitalism'. This includes the use of warfare to force through massive compulsory privatization in Iraq in the aftermath of the Allied invasion in 2003. Klein describes how the disaster of Hurricane Katrina in New Orleans in 2005 provided conditions for the large-scale privatization of the New Orleans school system. Never let a good crisis go to waste is sometimes said to be a neoliberal mantra. This can be seen in the 2011 eurozone crisis where democratic governments have been forced to accept public-sector cuts and almost a coup by 'finance' to roll back the state and notions of the public interest.
Klein evocatively writes how 'only a great rupture – a flood, a war, a terrorist attack – can generate the kind of vast, clean canvases they crave. It is in these malleable moments ... that these artists of the real plunge in their hands and begin their work of remaking the world.' 'Crises' provide a clean slate, a shock treatment, a 'creative destruction' enabling the work of remaking the world for fresh rounds of private-sector investment.
Economic geographer David Harvey summarizes how neoliberalism involves 'accumulation by dispossession'. There are many examples. Peasants are thrown off their land, collective property rights are made private, indigenous rights are stolen and turned into private opportunities, rents are extracted from patents, general knowledge is turned into intellectual 'property', the state forces itself to sell off or outsource its collective activities, trade unions are undermined, and new less regulated instruments and flows redistribute income and rights towards finance and away from productive activities.
Since 1980 neoliberalism has thus become the dominant global discourse, albeit significantly contested. It is written about and acted upon within most corporations, many universities, most state bodies and especially international organizations such as the World Trade Organization, the World Bank and the International Monetary Fund. Harvey summarizes how neoliberalism was 'incorporated into the common-sense way many of us interpret, live in, and understand the world'.
Such neoliberalism is significant for energy. Neoliberalism promotes the notion that only markets and the private sector should develop solutions to what economists term the external diseconomies of economic growth. Some neoliberals simply expect the market to generate solutions without needing extra measures or state encouragement of any sort. The recent growth in various generations of biofuels is the kind of market solution favoured by neoliberalism in response to the dramatically rising price of oil.
Neoliberalism also involves the light regulation of banks and financial institutions and the resulting trillion-dollar growth in financial securitization. There has been the undermining of the distinction between commercial and investment banking with the lowering of lending standards and the proliferation of innovative or risky business models. There was the 'macho' domination of financial services and a privileging of competitive individualism implemented through a bonus culture that rewarded indebtedness and dangerous risk taking. Hedge funds, which are private investment funds investing in a hedged portfolio to protect the fund's investors from market downturns, have mushroomed.
There has also been the extensive offshoring of earned revenues that ought to be taxed and used for providing collective services and benefits. Nicholas Shaxson describes the growth of tax havens or what he calls 'treasure islands'. These various islands and other centres of power involve jurisdictions facilitating tax avoidance (legal) and tax evasion (illegal). There are around seventy or so secrecy jurisdictions or 'treasure islands' making up this offshoring world. 'Offshore is how the world of power now works', says Shaxson. These treasure islands include the City of London, Delaware, Switzerland, Jersey, Manhattan, the Cayman Islands, Monaco, Panama, Gabon, the Netherlands, Liechtenstein, Singapore, Hong Kong, Gibraltar and so on.
This offshore world reduces the capacity of states to tax revenues in locations where companies and individuals generate their income and wealth. More than half of world trade now passes through tax havens, including much oil revenue. Eighty-three out of the USA's top hundred companies have subsidiaries located in one or more tax havens. A quarter of all global wealth is held 'offshore'. This offshore money uses the same kinds of accounts, instruments and devices as deployed by corrupt, laundered, terrorist and criminal monies, which are easily able to evade weak regulation, often depending upon banks themselves for implementation. Poachers make bad gamekeepers we might observe.
This offshoring within secrecy jurisdictions generated the enormous shadow banking system and the overwhelming imbalance between 'financialization' and the 'real economy', so much so that almost all of the world economy is now 'financialized'. By September 2008 the global value of financial assets was $160 trillion, more than three times world GDP. By April 2010, the average daily turnover in global foreign exchange markets exceeded $4 trillion. These huge flows of finance result in the 'dictatorship of financial markets'. Such a dictatorship redistributes income and rights away from the 'real economy' and creates a significantly untaxed, ungovernable and out-of-control 'casino capitalism', much more like gambling than banking according to Roubini and Mehm. Finance generates about 30 per cent of all operating profits in the USA, although it accounts for less than 10 per cent of value-added in the economy.
In recent years finance has especially flowed not into manufacturing industry but into many kinds of property development, so generating various housing and real-estate 'bubbles'. In order for property to get built the private sector often cajoles national or regional states to create and pay for related infrastructure such as motorways, high-speed rail links and airports. Property development is undertaken by firms borrowing finance, with the properties built then being purchased by buyers who also borrow to make the purchase. Loans are made to property purchasers who would not otherwise be able to buy such properties. Thus there is the speculative funding of highly leveraged new developments leased or sold with escalating indebtedness. Property developments include here suburbs, apartments, second homes, hotels, leisure complexes, gated communities, sports stadiums, office blocks, universities, shopping centres and casinos. These are all built on the indebtedness of governments, developers and purchasers. And the greater the reliance on debt and leverage, the more fragile will be the macroeconomic system.
Central in neoliberalism is this speculative intertwining of finance and property development. This involves new forms of 'finance', which is another way of referring to debt. The debts incurred are themselves turned into commodities or 'securitized'. The debts are parcelled up, sliced and diced, into financial packages that are sold on, with huge markets developing throughout the world for many of these 'products' which presuppose that property can only be worth more. This creates a financially complex 'house of cards' resting upon the 'bet' that property rises in value. This is the most recent version of what Nouriel Roubini and Stephen Mihm say is typical; that is, 'capitalism is not some self-regulating system ... rather it is a system prone to "irrational exuberance" and unfounded pessimism. It is ... extraordinarily unstable.' There is 'systemic risk in banking ecosystems'.
And capitalism is especially unstable because of the problem of debt, not something typically analysed by conventional economics, which is thus poor at anticipating this fundamental instability. During the 2000s an unsustainable 'bubble' of private, corporate and national indebtedness developed, initially within the USA. It was this bubble that then burst during 2007–08, bringing down householders, banks, financial institutions and property developers, first in the USA and then worldwide. This was the worst financial collapse since the Great Crash of 1929. How is this sorry story of chronic instability related to the supply and price of oil?
From the 1980s onwards many new suburbs in the USA were built distant from city centres. They were not connected to their city centres by mass or public transit. Such Sprawltowns depended upon car travel and hence plentiful cheap oil to enable their newly arriving residents to commute to work and drive about for leisure and social life. Only half of US suburbs have access to public transport and hence residents depend upon car travel and thus on the price of oil.
Especially from 2005 onwards, much suburban housing was 'sold' to people with 'subprime' employment, credit and housing histories, involving new financial 'innovations'. Although subprime housing is 'central' to the events that 'triggered' the crash of 2007–08, it has not been recognized how many subprime suburbs were driven to the brink by oil dependence and oil price spikes in the few years beforehand. Even Joseph Stiglitz's dissection of the American 'mortgage scam' does not fully grasp how energy resources could bite back and reverse what seemed at the time irreversible. How did oil reverse what appeared inevitable, that property could only keep going up in value?
There had indeed been cheap oil for much of the period since the early 1980s. The US index of petrol prices was in money terms 134 in 1990 and more or less the same in 2000 (138). The roaring 1990s, especially house price inflation, which ran two and a half times the increase in per capita income for Americans, was based upon a falling real price of petrol. Such petrol prices remained more or less constant in money terms until 2003 (145).
Indebtedness in the USA in turn fuelled the huge growth in consumption as house prices rose. It became possible to cash in the 'rising values' of property, especially in 2002, 2003 and 2004. That money was used to fund further consumer purchases, especially of goods which were increasingly manufactured within China. This generated a vast US current account deficit. Many Americans nevertheless believed that they really were richer as house prices rose and private debt skyrocketed. Also many people were drawn into purchasing housing through very low rates in the first few years of their mortgage, but where in later years much higher rates were charged ('variable rate mortgages').
Writing about these processes during 2006, Marxist historian Robert Brenner observed how financial speculation was generating a real-estate mania. The total apparent value of residential property in the major developed economies had risen by more than US$30 trillion between 2000 and 2005. This staggering increase was equivalent to 100 per cent of those countries' combined GDPs at the time.
Excerpted from Societies Beyond Oil by John Urry. Copyright © 2013 John Urry. Excerpted by permission of Zed Books Ltd.
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Table of Contents
Introduction: the problem of energyPart I Oil dregs 1. Oil and the crash of 2007-8 2. The century of oil 3. Consuming miles 4. Carbon capital 5. Peaking 6. The Chinese century? 7. The curse of oilPart II Social futures 8. Magic bullet future 9. Digital lives 10. Resource fights 11. Low carbon society 12. After easy oil