Differential Profits and War in the Middle East  

Cryptogon has an interesting find today - a study showing the correlation between lagging oil company profits and wars in the middle east. I'm not sure how to classify this one - some form of neo-marxist economic analysis ?

The New Order of Capital

The central change concerns the underlying nature of capital, a transformation that began in the late nineteenth century but became evident only recently.

Existing theories, anchored in the reality of the early nineteenth century, continue to examine capital from the ‘material’ perspective of consumption and production. Neoclassical economists anchor their analysis in utility, while classical Marxists base it on labor time. In contrast to these approaches, we suggest that, under modern conditions, capital can no longer be viewed as a ‘material’ entity. As we see it, capital represents neither neoclassical utility nor Marxist abstract labor, but rather power—the power of its owners to shape the process of social reproduction as a whole.

Based on a power understanding of capital, we argue, first, that the analysis of capitalism should focus not on capital ‘in general’ and many capitals ‘in competition,’ but specifically on the dominant capital groups at the centre of the political economy. Second, we claim that accumulation should be understood not absolutely, but differentially—that is, in reference to the ability of dominant capital to ‘beat the average’ and increase its relative power.

The implications of this power perspective are far reaching. For our purpose here, they suggest:

1.That over time, corporate mergers, rather than economic growth, become the main engine of differential accumulation (‘breadth’); and

2. That under certain circumstances, dominant capital can benefit greatly from inflation and stagflation (‘depth’).

In our research we found that, over the past century, global accumulation indeed oscillated between these two regimes of merger and stagflation. The most recent phase, which lasted through much of the late 1980s and 1990s, was clearly one of breadth. In that period, dominant capital benefited greatly from the opening up to corporate takeover of the former Soviet Union and other ‘emerging markets,’ as well as from the collapse of the welfare state and the massive privatization of government services.

This breadth cycle, with its emphasis on neoliberalism, deregulation, sound finance and disinflation, came to a close at the turn of the new millennium. The financial crisis that began in Asia and later spread to the core markets, the crumbling of the ‘new economy’ and its scandalous accounting practices, and talk of global terrorism and the infinite war to defeat it, have together made capital movement look less tempting and mergers far less promising. Furthermore, two decades of neoliberalism have weakened pricing power, raising the specter of price and debt deflation for the first time since the Great Depression.

Faced with these predicaments, capitalists generally and dominant capitalists particularly began yearning for a little dose of ‘healthy’ inflation both to avert debt deflation and to kick-start differential accumulation. As it turned out, the solution for their predicament—intended or otherwise—was a new ‘Energy Conflict’ in the Middle East (that is, a conflict related directly or indirectly to oil). Over the past thirty-five years, these conflicts have been the prime mover of oil prices, and oil prices have provided the spark for broad-based inflation. It was a turnkey mechanism for triggering inflation, and it was ready to use.

In this sense, military conflict has come to assume a new, roundabout role in the accumulation process. Until the 1950s and 1960s, the main impact of military conflict worked through large military budgets which directly boosted aggregate demand and overall profits, as well as the income of the leading military contractors. But with the re-globalization of ownership and the on-setting of détente, military budgets started to contract. Initially, they fell relatively, as a share of GDP, but since the late 1980s, they also began to drop absolutely, in constant dollar terms. Although these expenditures still nourish the military contractors, their direct effect on capital accumulation has diminished significantly.

However, military conflict as such hasn’t lost its appeal; it still has a big impact on accumulation. The novelty is that the impact now works mostly indirectly, through inflation, relative prices and redistribution.

Energy Conflicts and Differential Profits

The key beneficiaries of this new, indirect link are the large oil companies. The geographic centre of this process is the Middle East. After the Vietnam War, the Middle East has become the hot spot of global conflict, with obvious corollaries for the price of oil. The relationship between these conflicts and the differential profits of the oil companies, however, has received little or no attention.

The reason for this neglect is not difficult to see. Most analyses of Middle-East conflict and oil are situated in the disciplinary intersection of ‘international relations’ and ‘international economics.’ Their basic reasoning boils down to a struggle among states over raw materials. On the one hand, there are the industrialized countries that need cheap oil in order to sustain their growth and expanded reproduction. On the other hand there are the countries of the Middle East , organized through OPEC, whose intention is to extract from the process as much rent as they can. This broad conflict is complicated by various factors: for example, inter-state rivalry—say between the United States and the Soviet Union (previously) and Europe and Asia (presently); religious and ethnic hostilities in the Middle East itself; or the interests of various sectors and capitalist fractions in the industrialized countries.

In this polemic of high politics and resource economics, few have bothered to break through the aggregate front, fewer have done empirical work, and almost no one has dealt with the question of how exactly accumulation by the oil companies fits into the picture. Figure 2 offers a glimpse into what is missing from the story. The chart shows the history of differential accumulation by the ‘Petro-Core’ of leading oil companies—specifically: BP, Chevron, Exxon, Mobil, Royal-Dutch/Shell and Texaco.

Each bar in the figure measures the difference between the rate of return on equity of these companies and the average rate of return on equity of the Fortune 500 benchmark (with the result expressed as a percent of the Fortune 500 average). The grey bars show years of differential accumulation; that is, years in which the leading oil companies beat the average with a higher rate of return. The black bars show periods of differential decumulation; that is, years in which the leading oil companies trailed the average. For reasons that will become apparent in a moment, these latter periods signal ‘danger’ in the Middle East . Finally, the explosion signs show ‘Energy Conflicts’—namely, conflicts that were related, directly or indirectly, to oil.[7] The figure exhibits three related patterns, all remarkable in their persistence:

First, every energy conflict in the Middle East was preceded by a danger zone, in which the oil companies suffered differential decumulation.

Second, every energy conflict was followed by a period during which the oil companies beat the average.

And, third, with only one exception in 1996-7, the oil companies never managed to beat the average without an Energy Conflict first taking place.