Free Markets to the Rescue

Rich Tucker

6/4/2012 1:11:00 PM - Rich Tucker

In summer action movies, there always seem to be superheros ready to swing into action and protect the world when it’s in need. Outside of movie theaters, of course, there are no superheros. But there is a super system, one that gives birth to the sort of companies that can help protect the world.

It’s free market capitalism. Consider the big western (and that usually means American) oil companies.

First, let’s define the term. Many use “big oil” as a pejorative, as if it refers to a powerful company that controls energy from the wellhead to the gas tank. But that vertically integrated model is decades out of date. Most countries that produce oil, including Saudi Arabia, Russia, Venezuela and Mexico, have nationalized their in-ground oil supply.

As the Baker Institute at Rice University has reported, “State-owned monopolies, known as national oil companies (NOC), represent the top 10 oil reserve holders internationally. By comparison, ExxonMobil, BP, Chevron and Royal Dutch Shell are ranked 14th, 17th, 19th and 25th, respectively.” As much as 80 percent of recoverable oil is controlled by national oil companies, leaving little for American oil “giants” to own.

So if they don’t own crude, what is it that makes American oil companies so valuable? The answer is simple: Innovation. Select a difficult oil extraction or shipping problem around the globe, and chances are it’s being led by an American oil company. In his book, “The Quest,” energy analyst Daniel Yergin lays out some such projects.

In the unfriendly climes of the northern Arctic, “Conoco brought the know-how it had learned from Alaska, where new technologies had been developed in order to minimize the footprint in Arctic regions,” Yergin writes. In the 1990s, meanwhile, ExxonMobil opened up shop on Sakhalin, a frozen island north of Japan. Some considered it “the most complex project that the company had ever undertaken up to that time—working in a remote undeveloped subarctic area, where icebergs are a chronic problem, winds are hurricane strength for several months a year, and temperatures can drop to -40 degrees or even lower.” But the company made the project work and produce oil.

Whether it’s building a pipeline through difficult terrain or putting out oil field fires, the rest of the world turns to American oil companies when it needs to accomplish difficult tasks. Our free market system encourages entrepreneurship, innovation and hard work. Since the companies don’t own much of the raw material, they must be better than others at recovering, shipping and marketing it.

Contrast that with what Yergin describes as a “petro-state,” one of the countries that has nationalized its oil.

“The most important ‘business’ in the country (aside from oil production itself) is focused on getting some of the ‘rents’ from oil—that is, some share of the government’s revenues,” he writes. “The economy becomes inflexible, losing its ability to adapt and change. Instead, as the edifice of the state-controlled economy grows, so do subsidies, controls, regulations, bureaucracy, grand projects, micromanagement—and corruption.”

In his book, We Still Hold These Truths, Heritage’s Matthew Spalding writes that the Founding Fathers recognized the power of free enterprise, and crafted the Constitution to protect it along with American’s property rights. He notes “the striking difference between a free market system based on rewarding the dynamism of the human spirit and a centrally planned system that suppresses capitalism in order to redistribute wealth and limit individual opportunity.”

Unfortunately, our country seems to be sliding away from free enterprise and toward a centrally directed economy under the control of unelected bureaucrats. Many “administrative agencies operate in practice as a headless fourth branch [of government], beyond the control of the executive and limited largely by budgets they carefully negotiate with congressional committees and staff,” Spalding writes.

This could become a matter of life and death, for our economy and for our people. Recall that the Chilean miners rescued in 2010 were saved because of technology developed by small, entrepreneurial American firms. “Companies exist to make money, but there’s no greater satisfaction to the soul than saving somebody’s life,” the vice president for business development at one of those American firms, Schramm, told USA Today. It’s no coincidence that such technology comes from free market countries including the U.S., Japan and Germany, not from nationalized economies.

Free market capitalism sometimes gets a bad name. But we need to start defending it. Otherwise, where are the life- and job-saving technology breakthroughs of tomorrow going to come from?