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The Political Economy of World Energy: A Twentieth Century Perspective.

This book provides a detailed and well-documented narrative description of global patterns of energy use and production during the twentieth century. After a brief introductory chapter, Chapter 2 starts the narrative with a discussion of energy's role in the industrial maturation of the West from 1900 to 1918, when coal still provided most of the world's primary energy requirements. Chapter 3 moves on to describe developments in the energy sector during the interwar years, when alternatives to coal such as electricity, oil and natural gas were rapidly gaining market share, especially in the U.S. This period also saw the rise of the multinational oil companies and the emergence of producer nationalism in the oil-exporting lesser developed countries (LDCs). Next, Chapters 4 and 5 trace the crucial role played by access to energy supplies in military strategy during the Second World War, and explain the growing frustration of the oil-exporting LDCs with the hegemony of the multinationals, leading to the creation of OPEC in 1960. Chapter 6 then shows how post-war economic growth led the West and Japan to significantly increase their dependence on energy imports under the assumption that cheap oil would always be available.

Chapter 7 covers some already well-traveled ground in assessing the West's policy responses to OPEC's first oil price increase in 1973, while Chapter 8 chronicles the somewhat more neglected reactions of the (now former) Soviet bloc and the Third World. Chapter 9 then extends these two policy assessments to the second oil price shock following the Iranian revolution of 1979. Interestingly, except for a few, lightly populated oil-exporting states such as Kuwait and Saudi Arabia, Clark finds that the energy crisis seems to have had little permanent impact on many LDCs. Heavily populated net oil exporters such as Mexico and Nigeria failed to take full advantage of their sudden revenue windfalls, as they incurred huge debts under the assumption of ever higher oil prices yet made little real progress towards balanced development for their people. For many poorer net oil-importing LDCs such as Tanzania, sharply higher oil prices did not significantly derail their feeble steps toward development, as much of their energy requirements still came from non-commercial indigenous sources. Consequently, the unexpected declines in oil prices of the mid-1980s brought no tangible relief to many oil-importing LDCs while only exacerbating the debt burden of the oil-exporting LDCs.

Chapter 10 concludes the narrative with a brief general summary and draws some implications for current energy policy. The author's basic assessment is that the energy policies of the industrialized nations over this period have focused only on ensuring continued access to needed fuels at the lowest possible cost. The pursuit of such supply-side policies that neglect the potential benefits of non-price conservation measures and improvements in energy efficiency has led to virtually unconstrained growth in global fossil fuel consumption and unnecessarily high levels of import dependence. Western governments have foolishly put continued economic growth ahead of environmental concerns, ignoring the obvious warning signs of acid rain, ozone depletion and global warming.

Thus, while world energy supplies may appear to be relatively plentiful at the moment, Clark believes that "the energy crisis has not been overcome . . . |it~ has metamorphosed into a crisis of overconsumption which . . . imperils the globe" |pp. 375-376~. The only way to avoid this impending ecological disaster is for the rich and technologically advanced countries of the world (especially the U.S.) to lead a global planning effort to reduce fossil fuel consumption and refocus the world's attention away from the insatiable desire for ever higher levels of output. Relying upon future technological advances and the free market to guarantee adequate energy supplies without further degrading the environment is seen as a naive solution that will surely lead to disaster.

Since the author is a professor of history, rather than of economics, his somewhat neo-Malthusian conclusions and socialist policy prescriptions may be based in part on his view of the relevance of market forces in the energy sector. In the opening chapter, Clark declares that in the course of his research he has "learned that political explanations are more useful than economic in understanding energy transactions" |p. 4~. This position is supported by his casual observation that energy prices often appear to bear little relationship to true resource costs.

As an example, Clark argues that the widespread increases in U.S. wholesale gasoline prices which followed the Exxon Valdez oil spill in April 1989 reflected industry "price manipulation . . . which has been recorded for decades in American markets" |p. 4~. Economic explanations for these price increases that were offered by U.S. oil companies at that time are discarded by Clark as thinly-veiled public relations propaganda intended to placate consumers and deter public scrutiny. Unfortunately, the economist's argument that current market prices must adjust in response to new information regarding replacement costs in order to properly allocate existing supplies, however cheaply obtained, often falls on deaf ears.

Nevertheless, just because energy prices may at times seem to be well above costs (e.g., crude oil from the Middle East), this does not mean one should basically ignore economics and focus instead on institutional and political factors when studying energy markets. While non-economic factors certainly play a role in energy markets, the underlying fundamentals of supply and demand still provide a powerful explanation of much of energy market behavior. The modern political importance of the Persian Gulf states is indisputably linked to their control over the lion's share of the world's lowest cost petroleum reserves. Using their combined economic market power to charge a wealth-maximizing price for oil which exceeds its marginal cost probably best serves their long run political interests as well.

Having said all that, I did enjoy reading this book and think that it provides a good historical summary of many aspects of the development of today's global energy markets. While I do not agree with its policy prescriptions or its largely negative conclusions about the future, I still think this book would make a nice supplemental text for selected background reading in an economic history or energy economics course.
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Author:Jones, Clifton T.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Oct 1, 1992
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