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Thursday, September 1, 1983

A Reviewers Notebook: The World After Oil

Thurman Arnold, the old Rooseveltian trust-buster, used to remark that the easiest way to make money was to enter a field that has been monopolized and give it some real competition. Something like this happened when the West, shocked by what the Organization of Petroleum Exporting Countries (OPEC) had done to give a fifteen-fold lift to energy prices, began to strike back. Bruce Nussbaum, an associate editor of Business Week, makes plain the dimensions of the West’s revenge in a remarkable book called The World After Oil: The Shifting Axis of Power and Wealth (New York: Simon and Schuster, 319 pp., $14.95). It is a story full of ironies, reminiscent in a way of what happened to Spain when gold from the Indies offered the deceptive promise of an easy street forever and ever.

To be sure, the West did not rely wholly on direct energy competition with the Arabs of the Middle East. It did turn its attention to the discovery and exploitation of new oil fields (in Alaska, the North Sea and Mexico), and it did put a new emphasis on coal. Atomic energy was a disappointment in America, but the French began to make something of it, using it for the generation of 35 per cent of their electricity.

The biggest blow to the OPEC monopoly, however, came by way of an indirection that might have escaped Thurman Arnold’s attention. What happened is that the entrepreneurial genius of the West, looking for profits that no longer could be had from the old high-cost “smokestack industries” (steel, automobiles, heavy machinery), sought out “energy-sip-ping” businesses in the new area of high-tech. The age of the computer, able to base phenomenal accomplishments on smaller and cheaper silicon chips with a voluminous memory capacity, would have come eventually if the Arabs had never tried to create an energy monopoly. But what high-cost fuel and high-cost labor did was to force inventive enterprisers to do in five years what they might otherwise have strung out through twenty.

The new industries expected in the twenty-first century are already here. Computers, biotechnology, electronics, says Mr. Nussbaum, use only a fraction of the energy that the old industries consumed. Automated factories with robot-run assembly lines need only a small percentage of the energy to operate compared to yesterday’s people-run Detroit plants. It is, says Nussbaum, a massive long-term trend that “will reverse itself only if oil returns to something approaching $10 a barrel.”

Looking Ahead

Mr. Nussbaum suspects that the future belongs to the United States and Japan, though there could be some surprises if it turns out that the Japanese can’t create with the same facility that they imitate. The West Germans seem to be outdistanced at the start simply because their whole tradition has pointed to predominance in the heavy “dinosaur” industries. Mechanical engineering and bulk chemicals do not make for “energy-sipping.” The West Germans are avid for Siberian gas for the compelling reason that a nation of mechanical engineers cannot find the teachers to transform a whole educational system overnight.

Soviet Russia, according to Nussbaum, is in the worst fix of all the major powers, even though its nuclear missile facade is imposing. It desperately needs the income that will be supplied by the new Siberian gas line, for its oil revenues are declining along with OPEC’s. With the military taking just about everything from the civilian sector, the Russian worker turns more and more to vodka for his solace. Life expectancy in Russia decreases, and agri culture fails to feed even those with shorter life spans. Tens of billions have to be spent on imported foods, and the masters of the Soviet military empire have to scrounge up $30 billion in subsidies to keep Cubans and Poles and Angolans in line.

With an economy much larger than Japan’s, the Soviet Union uses only a tiny percentage of microelectronics in its products, and most of this goes into military technology. What it has is either copied or stolen from the West. The copycat miniaturization is enough to turn “dumb” missiles into “smart” ones, but there is little left over to diffuse electronic benefits throughout the civilian economy. And even with the most accomplished copying and KGB-engineered thievery the stuff the Soviets gave to the Syrians could not cope with what the Israelis did with American computerized equipment.

Third World Prospects

As for the Third World, Mr. Nussbaum thinks that only a half dozen countries will “be able to make it to the twenty-first century.” The lucky ones will probably be “Brazil, South Korea, Taiwan, Hong Kong, Israel and Singapore.” Raw materials aren’t going to help a Third World country much. Copper, for example, is already being replaced by optic fibers, and when western technology begins mining the sea beds the profits will go to multinational corpora tions.

Mr. Nussbaum worries about “regional dislocation” in America. Silicon Valley is, as he says, a “Pacific basin” phenomenon. There could be a “dark side” to the future, particularly if Washington goes in for a protectionism designed to save the heavy industries of the Middle West. But if Congress takes wise measures, high-tech industries, “seeded” by rebuilt universities in the Northeast and Middle West, will begin to spread outside the Pacific basin. With new robot factories putting sales people to work and reviving dependent jobs, Ohio and Michigan will again become prosperous.

What Nussbaum does not allow for is the possibility that desperate nations on the one hand, and desperate individuals on the other, may behave irrationally even to the point of giving in to the Samson complex and pulling down the temple. With Taiwan, South Korea and Singapore “making it” to the twenty-first century on their own, would Red China be willing to sit idly by? As for western individuals without jobs, the dangers of Luddite antipathy toward robots must be reckoned with politically. But no author can foresee every possible eventuality. Mr. Nussbaum has at least written a pioneering work. In doing this he has vindicated an old truth: monopolies are bound to fail.

John Chamberlain’s book reviews have been a regular feature of The Freeman since 1950. We are doubly grateful to John and to Henry Regnery for now making available John’s autobiography, A Life with the Printed Word. Copies of this remarkable account of a man and his times—our times—are available at $12.95 from The Foundation for Economic Education, Irvington-on-Hudson, New York 10533.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.