Capitalism Gone Wild

Should the purchase of Unocal by a mostly Chinese government owned company go through? Putting aside the issue of US national security interests, perhaps the bigger question is whether Unocal should be allowed to merge with anyone at all. Have there been too many mergers in the Oil industry already?

The basis for capitalism, open markets and free trade is competition. Once competition has been removed from the equation, what do we have? Does Capitalism turned into Communism?

A totalitarian communist government has complete control over manufacturing and supply. Is this the model for the ultimate corporation, where a single entity or trust has control over all manufacturing and the supply of products?

Obviously, we have not progressed to that point where all corporations and government merge into a single, super-conglomerate, similar to the old Soviet government. But in certain industries, the manufacturing and supply are controlled, via endless mergers and collusion. In these cases, the consumer suffers, and is at the mercy of huge entities, that are not elected or controlled in any way, and corporate change only occurs when there is an internal political battle among the elite who run the companies. Average shareholders and employees have no say in the operation or direction of these government-sized entities. They are not democracies.

In the gasoline industry, a recent newspaper article is enlightening. It sites many examples of how the gasoline refiners have colluded to control prices and production, in a series of internal memos:

"In a 1995 internal memo obtained by U.S. Sen. Ron Wyden of Oregon, whose office has investigated the industry in recent years, Chevron discussed an industry meeting at which an analyst warned that if capacity wasn't reduced further, there would be no substantial increase in refining margins."

"In a 1996 internal memo, Mobil officials called for a "full court press" to stop an independent company from restarting a refinery in California that might reduce gas prices by 3 cents per gallon. The effort was successful."

"And a Texaco memorandum, also in 1996, stated too much capacity was hurting refinery profits. “Significant events need to occur to assist in reducing supplies and/or increasing demand for gasoline," according to the document."

The key to this problem is enforcement of existing anti-trust law. Oil companies were broken up in the past, but in the last 25 years of "pro-business" government, we have gone from simply being pro-business, to encouraging mega-mergers and monopolistic practices.

The Federal Trade Commission was compiling one of its biggest antitrust suits ever against the gasoline industry, but with the rise of "big business can do no wrong" politics, the case was dropped:

"A detailed portrayal of that turnabout is contained in a previously undisclosed 393-page document, assembled by Federal Trade Commission lawyers as part of an antitrust suit that was pending before an administrative law judge that was later dismissed.

As countries around the globe nationalized their oil industries, the domestic oil industry increasingly looked to refining for profits. In some instances, according to the FTC document, the oil companies cooperated among themselves to reduce refinery capacity. "

In the final analysis, perhaps it is not the merger of Unocal with the Chinese government that is the biggest issue, but the commitment to competitive capitalism. It is time to take a look at industries that have engaged in trusts, monopolization or collusion, and enforce those anti-trust laws that were boldly created in the past, in times very similar to these.

And in this light, the purchase of Unocal by another oil corporation is a bad idea, no matter who the buyer may be.