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July 26, 2004

Comments

Good post, Edward. I do have a couple of questions, however. First, isn't the real inescapable thing that the leaders of Equatorial Guinea should be treating the people better? Second, doesn't this statement: "ExxonMobile should not have taken advantage of the E.G. government in setting up their production contracts" imply either that ExxonMobil has a greater responsiblity to the people of E. G. than their own government does (it takes two parties to conclude an agreement) or that some other oil company would have concluded a trade more favorable to E. G.?

Trade is not ipso facto exploitative and it's not exploitative to conclude the best deal that you can, either.

Why didn't the government of E. G. conclude a better agreement? Corruption? Just stupid? In a hurry? No other bidders? It seems to me that the real problem lies there.

Trade is not ipso facto exploitative and it's not exploitative to conclude the best deal that you can, either.

Good question Dave.

I think we need a worldwide reassessment of what the "best deal you can" get actually is though.

I think the assessment needs to include more foresight. Who are you dealing with. Is this person going to do what's best for his nation (your host home for a while) and if not, what are the likely consequences of what might be viewed down the road as an unfair deal? My argument is business doesn't happen in a sociopolitical vaccuum, and the businessmen happily raking in the bucks today might be hostages tomorrow.

On your first point:

[I]sn't the real inescapable thing that the leaders of Equatorial Guinea should be treating the people better?

Absolutely, which is why the Exxon folks are knowingly dealing with the devil. Our policy seems to be to use sanctions to encourage the end of human rights abuses in other countries...why the open door policy in E.G.?

and the businessmen happily raking in the bucks today might be hostages tomorrow

That's exactly why I don't believe in indemnifying companies against the consequences of their own folly. Not that anyone pays any attention to me.

Good post, Eddie.

Why focus on ExxonMobile, though?

Those folks need to sell the oil to get $$ for food, clothing, shelter etc, etc.

Maybe EM is a buncha weasel, crooks, I have no idea. Maybe, they can get a better deal elsewhere. Maybe they can refine the oil without the held of EM, who knows?

But, the first questions are, Why is the country so poor and What can be done about it?

Those are the tough questions. Any ideas?

Not picking on ExxonMobile Navy. They just happen to be the example here. Some other company may have given them only 10% of the revenues. The point is, if the standard is much higher than 12% (and I'm not really sure if that rises with time and the 60% number noted is not an average as much as simply the best deal out there and the average is closer to the 12%, but the fact that ExxonMobile didn't want to answer questions about it tells me they might not feel this is was a good PR move, regardless of how business savvy it was).

I really intended this to serve as a template to discuss issues such as the ill that can come from dealing with dictators (who have no interest in letting the profits from their nation's national resources trickle down) and letting businesses think they have any right to yell at diplomats who are just doing their jobs.

But, the first questions are, Why is the country so poor and What can be done about it?

I know there's a good argument for suggesting that E.G. should be happy someone found the oil and then someone else offered them what must have seemed like lots of money for it, but I can't help but think of one of bin Laden's complaints when I read this stuff: that the US owes Saudi Arabia X number of dollars for having conned them out of what he thinks was rightfully theirs.

When I see EM taking advantage of E.G., it makes me think that can come back to bite us in the ass.

Why not offer them a deal that's unquestionably fair? One that an Exxon spokesperson would be proud to appear on 60 Minutes and defend?

Why not offer them a deal that's unquestionably fair? One that an Exxon spokesperson would be proud to appear on 60 Minutes and defend?

Because there's no bottom-line incentive to be "fair", and because the current generation of CEOs -- much like every generation, truth be told -- don't really believe in anything but bottom-line incentives.

It sucks, but that's capitalism for you. Unless we induce systemic changes (and damned if I know what they are), this is always going to be a problem.

Because there's no bottom-line incentive to be "fair"

Which goes back to my earlier point that deals like this don't happen in a sociopolitical vaccuum. As long as American business take the bottom-line approach to such matters, anti-Americanism will be a result. The same folks who cut the deal may not be the ones who pay the sociopolitical price later, but they should be trained to consider such repercussions.

Highly relevant article in the current Foreign Affairs regarding the curse of oil wealth. I encourage you to read it, but the basic summary is that nearly all of the nations that found significant petro resources in the last 20 years or so are trashed, and those that aren't trashed are worse off.

The thesis is that oil wealth ends up being a horrible thing to hang your hat on, because it a) suffers from severely fluctuating prices, encouraging binge/purge cycles of spending, b) does not engender the rise of a middle class, c) obviates the government from the need to tax for wealth, meaning it has no incentive to foster the growth of property taxes (and therefore property wealth), and d) is easily concentrated into the hands of a few, as opposed to say non-plantation agricultural wealth, which dissipated wealth in North America.

The conclusion of the article was that there ought be a mandatory distribution of Iraqi oil wealth to Iraqi citizens written into the constitution. I'm sure it's abhorrently socialist to many, but the arguments and conclusions are compelling.

I don't think that anti-Americanism occurs like this.

I grew up in the third world, and the poor (who are brutally poor) don't read papers, are generally illiterate, and don't often have access to analysis or any form of education. Likes and dislikes of abstract groups (like other ethnic groups or other nations) grows from cultural roots or from propaganda or grass-roots political movements, not from looking for the root causes of their situation.

Of course, this is a generalization, but generally something like anti-Americanism results from the influence from populist political leaders or movements.

So if the leaders of a nation are kept happy with money from oil revenue, and they can control their opposition, and keep some kind of control over their poor, then anti-Americanism is unlikely to develop. If, on the other hand, the poor are so frustrated with their situation that they are drawn to anti-American political figures who promise them a way out of their poverty, and a suitable source of blame, then this becomes an issue.

All I.M.H.O., of course.

because the current generation of CEOs -- much like every generation, truth be told -- don't really believe in anything but bottom-line incentives.

Sorry, but you're targeting the wrong people. The bottom line is all that the market cares about. For a short time during the dotcom boom it was revenues and buzz (which drove investment in employees) but now its back to profits. And the market is not just made up of "the rich", but California school teachers hoping to retire some day.

When the treatment of people becomes more valued to the market than profits, CEOs will make Mother Theresa look like Scrooge.

The conclusion of the article was that there ought be a mandatory distribution of Iraqi oil wealth to Iraqi citizens written into the constitution.

I'm sorry, what arguments support something like this? I must have missed them.

I'm trying to imagine an Iraq where all of a sudden everyone had a steady income they didn't have to work for. The first thing I see is that production immediately drops, due to lack of interest. Second is that prices go up, due to lack of supply. Third, things stabilize with prices uniformly higher, and the average Iraqi no significantly better off than he was before.

Not that I take the above all that seriously; just something to throw out there. Keep in mind that it's been literally decades of economic fallow-ness since I took Macro and Micro.

Before you do something that you construe as "just", it's best to consider possible consequences, no? So, let's hear it: what are the pros and cons of doing what sidereal says the article advocates?

If all the money is being taken by Mbasogo and his family what difference does it make to the citizenry how much ExxonMobil pays them? That seems like a secondary issue, though I do wonder why other firms didn't compete with more generous offers.

The primary issue is how to get the wealth into the hands of the people who live there. After all, while $2700 is not a lot, the median income must be a fraction of that.

Edward, you hint at things that can be done immediately. What are they? Should the US adopt a policy of "you're on your own" in these deals, so that if Mbasogo or a new government decides to nationalize ExxonMobil's operation the company gets no help from the US govt?

I'd consider carefully the idea of the money being plowed back into making the country clean and whole again without the direct payment to individuals, too, but as a completely separate approach.

If, on the other hand, the poor are so frustrated with their situation that they are drawn to anti-American political figures who promise them a way out of their poverty, and a suitable source of blame, then this becomes an issue.

You're actually making the same case I was trying to make double-plus-good (albeit, perhaps more clearly). In either scenario (i.e., the leaders of a nation are NOT kept happy with money from oil revenue OR anti-American political figures promise a way out of their poverty), being able to point to real facts that suggest real abuse by US corporations only serves to help anti-Americanism be used in such efforts, thereby making it an attractive political device.

Now, clearly there will be folks who'll demonize the US for their own purposes with no good reason, but we don't have to help them by giving them good reason to be upset.

The conclusion of the article was that there ought be a mandatory distribution of Iraqi oil wealth to Iraqi citizens written into the constitution. I'm sure it's abhorrently socialist to many, but the arguments and conclusions are compelling.

Makes sense to me. Don't they do this in Alaska? I mean its more of a dividend based on the fact that the state government takes in a lot of oil related tax and can then disburse it to their population, but that's really just tomayto, tomahto eh?

but we don't have to help them by giving them good reason to be upset.

Who's this "we" you keep talking about. Are you engaged in pissing off third-world nations, Edward? If so, maybe you ought to consider not doing that.

I don't get it. The problem is that the money generated by oil revenues doesn't get to the populace in any form. Since the problem is a corrupt government exploiting the people, how would a better deal from Exxon help things? By the news account, the corruption predated Exxon's involvement. We have seen from the UN oil for palaces deal that billions can be spent on corruption without anything getting to the people. I'll agree that this is a classic case for Anti-Americanism, but for different reasons. Much of anti-Americanism in the recent past has been concerned about blaming America for things which are the fault of people's own governments.

This is an excellent example of that.

If even the 'small' percentage was getting to the people in any form, the country would be MUCH better off. But it isn't getting to the people, so adding more money on that side doesn't seem likely to help. Exxon could have been 'fair' by your terms with no net gain to the people of Equatorial Guinea.

Of course if we actually were an imperial state we could go in and depose the government. Is that what you want? Would you prefer that Exxon not develop oil there? Perhaps we need to let a French Company do it? How would that help the people of Equatorial Guinea? The problem is that you want to blame a pre-existing problem on capitalistic 'exploitation' which took place afterwards.

Edward, you hint at things that can be done immediately. What are they?

First off, tell business to piss off when they try to intmidate the State Department. Assume that the Ambassador is working for all Americans when he reports human rights abuses, not just some oil executive.

Secondly, introduce the idea of political repercussions into business models. How much will extra security cost you down the road if anti-American forces start attacking your employees or facilities? How much does ill will cost you? Think long and hard about these things when cutting that extra special deal with a lunatic dictator. He won't always be in power. Whoever is next might just have an MBA from Harvard and decide to make you pay for being so faithless in your initial dealings with his/her country.

Think beyond the bottom line.

Edward: Now, clearly there will be folks who'll demonize the US for their own purposes with no good reason, but we don't have to help them by giving them good reason to be upset.

Well, yes, absolutely. And this also applies to the most-extreme form of anti-Americanism visible today, the Jihadists. It's frustrating watching these extremists groups gather so many recruits all over the world right now simply because they can point to Iraq and say "See? These are the guys responsible for all that's wrong with your life right now. Join us, we're doing something about it."

IMO, the strongest point in Kerry's anti-terrorism platform is breaking the extremist's hold on the poor and the young by spreading around some money and education in the areas with the most potential recruits. That, in the long run, is going to break the backs of the recruiters.

OK, this goes out to a few people. Yes, there are clearly two issues here:

1. How to get the money into the citizens hands

And yes I agree that Exxon is in no way at fault for this not happening.

2. How to avoid helping write the anti-American rhetoric that is potentially going to arise in this country?

The answer to that is to be able to defend the practices/deals on something higher than a bottom-line rationale. Exxon's lowballing the country may have been good business, but it may yet prove to have been bad politics. Exxon should think about the political consequences too.

Well Edward, one way to go about this in a kind of end-around, jail Capone for tax evasion, style would be to lobby the FASB to change the GAAP so that the goodwill you suggest businesses engage in is better recognized. Goodwill on the balance sheet could then be increased resulting in a more valuable company. Shareholders would like that, and CEOs would work to make it happen.

"How to avoid helping write the anti-American rhetoric that is potentially going to arise in this country?

The answer to that is to be able to defend the practices/deals on something higher than a bottom-line rationale."

And you think a higher percentage of the total oil proceeds going to the corrupt government would satisfy that requirement? If yes, I'm confused as to how.

If no, what would you have Exxon do?

I'm not trying to defend Exxon, I'm trying to tease out what you would want to have happen. In a world where I have magical powers, I could wave a wand and replace the government with a good regime that shares the oil money. But in this world, what do you want us to do. I understand what you want the end result to be, I just don't understand what you think we ought to do to get that result.

Re Sebastian's comments:

"Much of anti-Americanism in the recent past has been concerned about blaming America for things which are the fault of people's own governments."


absolutely true, but largely irrelevant. was the fall of the Shah in Iraq in the interest of the US government? is the poisonous triangle between the US govt, the military-industrial complex and the House of Saud in the long-term interest of the USG?

to me, no.

so what's to be done? well, it appears that contracts between third-world nation-states and first-world resource producers have failed to serve the public interest.

let's tease this out a little. in the US, all contracts are subject to a public interest component. for example, a contract to murder is not enforceable. additionally, many contracts exist within a regulated environment, like the one between you and your power company, or you and your insurance company.

there appears to be an analogy that can be drawn between power company contracts and mobil's extraction contract. in both cases, there is a tremendous potential for unequal bargaining positions, exercise of monopoly power, and lack of use of wealth created by the contract for public purposes.

so let's regulate, through international law, these contracts in the same way that the Public Utilities Commission regulates power contracts. let's get the WTO or the UN or the World Bank involved. Establish a fair market rate so the country doesn't get taken to the cleaners. Require that the funds be put into public trusts used for public purposes. instead of the money going into the national treasury, put the money into public trusts whose use is subject to audit and international inspection.

is this a gross interference with national sovereignity and corporate liberty to contract? yup. but exxon mobil obtains incredible benefits by being a first-world chartered company, including the protection of the US's national defense. when the coup comes, Uncle Sam will come to the rescue, saving both the corporate assets and the lives and property of the individual employees.

if EG wants access to the technological know-how of the west, it should have to obtain it on the West's terms. sure it's a form of economic imperialism. but the laissez-faire nature of the existing contracts is just another form of imperialism, where the mailed fist of US military power lies within the velvet glove of US corporations.

cheers

Francis

I'm not trying to defend Exxon, I'm trying to tease out what you would want to have happen. In a world where I have magical powers, I could wave a wand and replace the government with a good regime that shares the oil money. But in this world, what do you want us to do. I understand what you want the end result to be, I just don't understand what you think we ought to do to get that result.

In my magical world, restrictions would be placed on deals like this that would be based on economic development plans that included a long-term broadening of the economic base, with the aim of developing a sizeable middle-class. After all, we place limits on resource exploitation based on environmental impact. Shouldn't ecomomic impact also be analyzed?

Or does the IMF and World Bank already do something like this? I confess ignorance.

"what are the pros and cons of doing what sidereal says the article advocates?"

What an odd construct. Do you have any reason to believe the article concludes anything else? Are you under the impression that I'm simply fabricating an article and/or its conclusions? Seems unnecessarily confrontational.

"I'm trying to imagine an Iraq where all of a sudden everyone had a steady income they didn't have to work for."

You can imagine anything you like, but the relevance to reality is tenuous. First, there isn't that much oil revenue. The article refers to Chad, where per capita income is $200 a year, and where distributing oil revenue would result in an increase in average income of 20 percent. It certainly doesn't replace getting a job or producing goods to be consumed with the now-existant spending power of the citizenry.

The fundamental idea is that when the government is corrupt, it is the worst place to put money. Households will make better spending decisions and will make that money more efficient. It is the same argument that conservatives use to argue against taxation here.

fantastic post Francis. looking forward to hearing more of your thoughts on this blog.

Sorry, but you're targeting the wrong people. The bottom line is all that the market cares about. For a short time during the dotcom boom it was revenues and buzz (which drove investment in employees) but now its back to profits. And the market is not just made up of "the rich", but California school teachers hoping to retire some day.

Of course, but the point is that it's the CEOs who are determining how their companies will be investing, where, and under what auspices. [The wealth of the CEOs is immaterial to this discussion.] Absent any structural change that projects the moral/ethical dimension onto the financial access, that's essentially the only way I see for this kind of parasitic relationship to be limited: by the people at the top choosing (more or less universally) not to maximize their profits in such a way.

There is an analogous movement that could start from the bottom -- a grassroots "non-exploitative investment" movement made up of, e.g., California school teachers (why them in particular, btw?) -- but I don't see that as having sufficient force to accomplish direct market-related change, only indirect governmental change pertaining to the markets. Enormously cynical of me, I know, but my observation has been that, en masse, people are quite happy getting an extra 2% on their investments while swallowing the glossy brochures that their companies disseminate that may or may not be omitting some inconvenient truths. Even worse, when those truths emerge, they're usually so shrouded in doubt or confusion -- sometimes generated by the company in question, most often just the usual murk surrounding dealings in third-world countries -- that people can, and do, choose not to believe them.

Summarizing this long-windedness, then, I see two ways to rectify the problem Edward is addressing:

1) The direct solution: CEOs voluntarily choose not to maximize their profits, and share-holders fail to punish them for it. This pretty much has to work from the top on down, for reasons I cited above.

2) The indirect solution: governments change their regulations of the market (presumably via the tax code?) to include a moral/ethical component to financial dealings. This would necessarily have to work from the bottom up, probably as a result of a grassroots effort.

I only addressed the first because it seemed to be the more germane of the two; the latter, because it involves governmental action, seemed more appropriate for another time.

Disclaimer: I could, of course, just be talking out of my ass here. In fact, re-reading this, I rather think I am... but I'm too tired to rethink this post atm, so I'll let it stand for now.

Are you under the impression that I'm simply fabricating an article and/or its conclusions?

No, just didn't know what article you were referring to. Without a link, and all. I thought I was giving you the benefit of the doubt, but if it was offensive, it wasn't meant to be.

In Iraq, a few billion dollars worth of oil revenue per year divided by 25M people comes to a pretty decent income that's on par with the per-capita GDP. Again, I could be way off-base here. Just saying, maybe giving oil revenue to people directly isn't the most intelligent thing to do.

I could, of course, just be talking out of my ass here.

Ah, a fellow pertrousorator!

The answer to that is to be able to defend the practices/deals on something higher than a bottom-line rationale."

And you think a higher percentage of the total oil proceeds going to the corrupt government would satisfy that requirement? If yes, I'm confused as to how.

If no, what would you have Exxon do?

You seem to be stuck on this idea Sebastian. It's not the percentage, it's the perception of having ripped them off because they were a poor nation and Exxon was a savvy international monster.

I would have Exxon not deal with a third-world dictator (a lunatic at that) in the same manner they would Shell Oil or BP or any other competitor of theirs with whom they can expect to be on an equal footing.

Making the point more parallel, however, were Exxon to discover oil off the shore of Holland, for example, and the Dutch negotiated a deal, and Exxon took them to the cleaners, I wouldn't really care that much. The Dutch have the resources to research the deal. The Dutch have most likely taken US firms to the cleaners in deals. The Dutch have a stable Democratic government. The Dutch are not likely to have the sort of political upheavel Equatorial Guinea is likley to see in the near future.

From what's available on this, it looks as if Exxon didn't consider the bigger political picture. They took advantage of a nation without the resources to research the deal because they could. When it comes back to haunt them though, no one will accept that they're responsible. We'll hear only "Oh, the 'blame America first' brigade is at it again."

Somehow, somewhere, corporations need to learn their actions have real political consequences.

Unless we induce systemic changes (and damned if I know what they are), this is always going to be a problem.

Actually such things have happened in the past. Check out the Methodist Revival of the 18th and 19th centuries. I suspect that most of the people commenting on this blog wouldn't think too much of the other changes that such a movement would bring. Be careful what you wish for.

"Without a link, and all."

Ah, the day someone invents functioning links to hardcopy will be a great day indeed. This is as close as I can get. Should pick it up, though. Can't be beat. This issue also carries an overview of Republican foreign policy by Chuck Hagel, which as far as I can tell is nearly the complete opposite of Bush administration foreign policy.

"Just saying, maybe giving oil revenue to people directly isn't the most intelligent thing to do."

Maybe. Always good to bolster a point with evidence and analysis, though.

Evaluations of policy intelligence can only be evaluated in light of a goal. If the goal is the improvement of the welfare and stability of Equatorial Guinea, you can't do much worse than plutocracy, which is what the market currently encourages.

It also, I think, highlights the fact that much of our reflexive support for market-based solutions is based not in universal truths but in the nature of US and European resources (being highly dissolute and difficult to centralize and monopolize) and we need to examine carefully whether the model needs to be tailored to the resources of the region, if only until a functioning economy is in place.

Particularly in places where the dominant resources are easy to centralize and monopolize (oil, diamonds) or require large investment to capitalize (plantation agriculture vs small-farm agriculture), the inherent decentralization that fostered the empowered middle classes of western liberal democracy does not exist and a thoughtless advocacy of unfettered markets only makes the problem worse.

Just a theory, though.

Maybe. Always good to bolster a point with evidence and analysis, though.

Which, in a roundabout way, is my point. For the purposes of this discussion, the mention of a print-only article advocating a position is pretty useless, to me. Others might have read it and can appreciate the point.

Fair enough Anarch, but CEOs and their boards (whow are growing more powerful since Enron etc.) have a legal, fiduciary duty to maximize shareholder value. Were Exxon to do what Edward suggests, qunituple the payout to the EG government just because its "the right thing to do...maybe", I'd guess there'd be a giant class action suit.

Hence, my suggestion above of changing the rules re: valuation of Goodwill. Were you to allow Exxon to add the value of the additional 48% of the production revenue forgone to their balance sheet, you'd find a much more accepting group of CEOs. No need to ask CEOS and Boards to change their natures (that being to do what is best for their companies) and no need to ask that citizens forgo profitable investments for less profitable ones that are nicer to Equatorial Gunieans.

BTW, I wasn't comparing CEOs wealth to anything, you're right, it is immaterial. I was trying to head off a discussion with regard to the class levels of investors, hence, California school teachers (why them in particular, btw?) = CalPers.

"the mention of a print-only article advocating a position is pretty useless"

Good thing I summarized the thesis and the conclusion and have since followed up with supporting analysis, then. Wouldn't want to be useless.

"From what's available on this, it looks as if Exxon didn't consider the bigger political picture. They took advantage of a nation without the resources to research the deal because they could. When it comes back to haunt them though, no one will accept that they're responsible. We'll hear only "Oh, the 'blame America first' brigade is at it again."

Why would getting more money into the hands of this corrupt government be better for 'the bigger political picture'? If you are going to be anti-American because your government makes sure you can't get any of the money it gets from Exxon, how will Exxon giving that government more money reduce the anti-Americanism?

Your 'cause' and 'effect' aren't linked.

Were Exxon to do what Edward suggests, qunituple the payout to the EG government just because its "the right thing to do...maybe", I'd guess there'd be a giant class action suit.

Crionna,

To be clear. I did not suggest they should increase the payout. I suggested they should have widened their considerations at the time they cut the deal.

Ah...the basis for the thesis that Iraq (and perhaps, by extension, EG) ought to distribute oil revenues to their respective populations is using CHAD as an example? Sorry, I missed that. Maybe because Chad and Iraq are so different that any such extension would need a great deal of buttressing with fact that's relevant.

FOr instance: The Doba oilfields are estimated to contain one billion barrels, total. Iraq can pump that amount out every year, and has about a hundred years' reserve at that rate. Iraq has two and a half times the population of Chad. Chad's planned production rate is x million barrels per day. Like that.

Also, don't forget that you can't complain about the rapacious deals at one end of Exxon without acknowledging the cheap, refined oil coming out the other side, which continues to drive an economy.

I have to agree with crionna that the solution isn't to chastise Exxon until the board transforms into boddhisattvas, nor is it punishing them with sanctions they'll inevitably find a way to get around (see Cheney/Halliburton). It's to change the economic model such that the welfare of the people of Equatorial Guinea is compatible with the unadulterated greed of Exxon's accountants.

Honest mistake Edward, Sorry for the misunderstanding. It just seemed that in comparing the 12% (EG) payout to 60% (elsewhere in Africa) payout and then commenting that Exxon and, in fact, Americans should be concerned about the fact that there is clearly going to be an awakening one day that Equatorial Guinea had been taken, you were implying that a larger payout would have been more prudent.

Why would getting more money into the hands of this corrupt government be better for 'the bigger political picture'? If you are going to be anti-American because your government makes sure you can't get any of the money it gets from Exxon, how will Exxon giving that government more money reduce the anti-Americanism?

ARGGHH!! {pounding head on desk now}

It need not be more money. It needs to be seen as a fair deal! If Exxon can defend the 12% (perhaps there are reasons it's so much lower than what other countries are getting), they should have appeared on 60 minutes and done so.

It's the perception that they DID NOT RIP OFF the country that's important in the long term. I am in no way saying more money would equal a better life for the people (clearly Mbasogo would just keep more) or even that more money would equal less anti-Americanism. I'm saying a sense that Exxon HAD BEEN FAIR in its dealings would equal less anti-Americanism.

As it stands now, apparently Exxon can't defend the deal. A budding anti-American revolutionary type in E.G. can interpret that any way that suits his needs.

Simplifying it down: Ripping people off leads to anti-Americanism.

Shouldn't this thread really be about how bad their leader is and what we can do to change that?

Shouldn't this thread really be about how bad their leader is and what we can do to change that?

Great post Edward. One component of the aid that Teodoro Obiang Nguema Mbasogo receives in enriching himself at his citizen's expense is the role of such financial institutions as Riggs Bank, which recent Senate reports have shown to be expert at money laundering for the Mbasogo's and the Pinochets of the world.

Here's essentially the same analysis made in electronic form.

Iraq per-capita income: $2000
Projected oil revenue: $19.4 billion (The association between revenue and profit is not clear, but apparently the margins on oil are ridiculous and nearly all revenue is profit).
Population: $22.5 million
$ per capita: $862, minus costs of redistribution.
% Unemployed (meaning they currently make no contribution to the economy): 25% - 70%

Whoops, obviously the population of Iraq is not measured in dollars (insert Halliburton joke here).

I'm saying a sense that Exxon HAD BEEN FAIR in its dealings would equal less anti-Americanism.

Sorry, but I'm convinced it far more complicated than that. First off, you make the classic mistake that anti-Americanism is rooted in real greivances that you are aware of - as opposed to completely imaginary and made up conspiracy theories that carry just as much weight as real ones. Secondly, why would having enough oil money to buy the guy's son sixty suits instead of thirty possibly reduce anti-Americanism?

If there's a revolution, and they throw ExxonMobil out, good for them, it's a crap deal.

Meanwhile, you can't have giant corporations that are majority-owned by the French government engaging in similar shenanigans, with the full support of their Foreign ministry (no risk of principled diplomats speaking out here) - and then notice the abject lack of anti-French sentiment (aside from perhaps their colonies) - without realizing there is a disconnect between real world greivances and which countries wind up being hated.

Yes. Near the end:

Here decisions have to be made as to the proper balance between demand creating transfers—increases in the purchasing power of the average Iraqi, and how much should be supply-creating transfers—funds earmarked for funding private investment projects.

Which is pretty much what I was attempting to explore, here. "Paradox of Plenty"...it's revealing that I didn't even know there was a name for what I was attempting (probably a poor attempt, knowing me) to describe.

Using the oil revenues to leverage getting the economy going...now THAT I can get behind.

So your point is that people who are irrationally anti-American will become less so if Exxon gives a fair deal to the tyrant who makes their lives miserable even though America is being used as a scape-goat to deflect attention away from said tyrant? I think I still don't get it.

Taking another example of production contracts linked to public purposes, take Alaska.

Alaska has the Alaska Permanent Fund. The Fund pays a distribution to every single resident of the State. It is operated off-books from the state's treasury. See apfc.org.

given the clear evidence of market failure in international resource extraction contracts, why not move to a more regulated regime? Exxon presumably would like to strike its extraction deals with as little interference from US and international government officials as possible.

But Exxon has successfully moved its political risk onto the public ledger. when the coup comes, Exxon will have the benefit of the US military to prevent the coup, and US courts to sue the subsequent regime to recapture the value of its nationalized assets.

(side note: my father was heavily involved in the negotiations for the release of the Iranian hostages after the fall of the Shah. the Khomeni government did not let the hostages go because they felt like it; a deal was made in which frozen iranian oil revenues in US banks were returned in exchange for the hostages' release. the pressure on him literally almost killed him. avoiding future situations like Iran IS a COMPELLING national interest as well as a personal one.)

one view of american administrative law is that it exists to force the recapture of externalities. pollution is the classic example. to me, exxon needs to be forced to recapture the externality created by entering into an unfair extraction contract with a corrupt government. otherwise, the exxon mobil shareholders get a windfall profit, with the loss borne by the US taxpayer.

i'm open to suggestions on how to create the appropriate regulatory regime in order to force exxon to recapture that externality. I think that the Alaska Fund model, plus a Public Utilities Commission-style model is a good starting point. Since I don't have a clue as to how the WTO works, I don't know if that legal structure could support such a model, or whether other more appropriate international legal structures exist (after all, it wouldn't exactly be fair to impose the requirement on Exxon alone thru domestic law, while allowing Royal Dutch/Shell to avoid those requirements.)

cheers

Francis

OK, Edward, I get it, although I totally channelled a Dilbert cartoon with you punding your head on your desk.

Still, Exxon's in a hard place eh? Don't go on 60 minutes and they're ripping off impoverished EGians. Go on and list the multitude of security risks attendant in doing business in EG and you not only give them ideas, but perhaps very real offense, not to mention fodder for the lawyers of Exxon employees' (or their widows) should things go bad...

Sebastian,

I am startled to find myself in virtually total agreement with you. We must be right.

Crionna,

Permitting the oil company to add an arbitrary amount of "goodwill" if they give a better deal does not seem likely to have any effect at all. It would be meaningless bookkeeping entry.

Edward,

I think you are wrong to say that it is the unfairness of the 12% rate that produces the anger. I doubt that some budding EG revolutionary cares one whit about the difference between 12% and 60% as long as it's all being stolen anyway. I think it is the perception that an American company is cooperating with Mbasogo to rob the people. If two guys mug me I'm going to be pissed off at both of them, regardless of how they split the proceeds.

after all, it wouldn't exactly be fair to impose the requirement on Exxon alone thru domestic law, while allowing Royal Dutch/Shell to avoid those requirements.

Ah, and there's the rub, no?

Permitting the oil company to add an arbitrary amount of "goodwill" if they give a better deal does not seem likely to have any effect at all. It would be meaningless bookkeeping entry.

Meaningless? How so? IIRC there have been lawsuits filed and FAS rules changed over how much "Goodwill" is worth. Goodwill is an asset. Increased assets = increased value = higher share price = higher CEO bonus.

Heck, lets add pollution control device expenditures to Goodwill as well. And why not let GM add a bit to their Goodwill everytime a Hybrid vehicle is sold?

Why does the discussion always seem to head toward how to change the rules to punish corporations for doing exactly what the market, we the people, want them to do, when we could change the rules to make it more profitable for them to do "the right thing" thereby aligning both interests?

Francis,

Interesting post...just one question...

Can you give me some examples of this happening in the last 60 years:

"But Exxon has successfully moved its political risk onto the public ledger. when the coup comes, Exxon will have the benefit of the US military to prevent the coup, and US courts to sue the subsequent regime to recapture the value of its nationalized assets."

Bernard (and Sebastian to some degree),

I think you are wrong to say that it is the unfairness of the 12% rate that produces the anger.

You've gotten ahead of what I'm saying. There is no anger yet.

The point of the thread is we're potentially watching anti-Americanism in its infancy here and there are lessons we can learn from it. Focussing on whether the percentage should have been more than 12% brings in tangents that confuse those lessons. What are those lessons?

First, the setting is important. What makes for a good business deal in Holland (scoring as good a percentage for your shareholders as you can) may make for a terrible long-term business deal in a thirdworld country with a lunatic dictator. I don't see any evidence Exxon or other corporations take that difference into consideration when doing these things. Granted, Exxon's refusal to be interviewed on the 12% can be read in other ways, but it sure as hell looks like they'd rather not discuss the matter because they know they pulled one over on E.G.

Second, the fact that the money is all being stolen will make the budding revolutionary angry at Mbasogo, yes. But the fact that what he didn't steal was instead, essentially in his eyes, stolen by Exxon will make him angry at the US. It need not be perceived that Mbasogo and the US were in cahoots. Only that both of them (in cahoots or independently) benefitted unfairly at the citizens' expense. Remember, we can't assume the revolutionary will be as clueless as Mbasogo seems to be.

It's not a matter of giving Mbasogo more than 12% because, then, he'd actually give some to his people. It's looking beyond Mbasogo, to the revolution Exxon should be able to see coming, and being able to defend to the revolutinary who wants his people to get their due, that they should be happy to liquidate Mbasogo's assets and take those...to be able to convince the revolutionary that Exxon too had not been stealing from the people.

The obligatory Halliburton Joke:

Halliburton may decide that KBR is more trouble than it is worth. Halliburton's energy services unit is enjoying solid results, but KBR is masking this performance. If, as published reports suggest, Halliburton decides to spin off KBR, most investors would probably cheer the move.

via the ever watchful Collounsbury

gotta second mnp and wilfred,

great comments Francis!

being able to defend to the revolutinary who wants his people to get their due, that they should be happy to liquidate Mbasogo's assets and take those...to be able to convince the revolutionary that Exxon too had not been stealing from the people.

The difficulty with this seems to me to be that age old difficulty in valuing intellectual property. Now, surely the capital equipment required to get the oil outta the ground is important, (as is the oil itself, of course) but more important is the knowledge of how to do it. I mean, paint and canvas is just paint and canvas until an artist of sufficient skill extracts art, right? IIRC, isn't that the reason that the militant jihadists are attacking foreigners in SA, to scare away the talent that extracts the oil rather than destroying the means of its extraction, in order to put pressure on the government?

Given that, color me doubtful that a revolutionary leader, having the government on the run, is going to let Exxon off the hook no matter how fair the deal may seem to 60 minutes viewers.

Now, if you're arguing that a provable level of fairness of any deal should be part of a decision to whether the US military helps Exxon out, then maybe that makes a bit of sense; right up until you have to explain to a rig wrench's 8 year old that Daddy's company made just a bit too much money on that deal to allow his government to stop him from being captured and beheaded.

I think we'll both agree that any way you slice it, the whole thing s**ks.

MMP:

Something relatively similar happened in Guatemala in 1954. An elected government that instituted a land reform program provoked the ire of the United Fruit Company which owned much of the arable land in Guatemala at that time.

A US supported coup (much of which was executed by the CIA through the use of clever propaganda and, frankly a lot of smoke and mirrors) got rid of the government in power. if you want to reead more about it, this book is an excellent source.

On the anti-Americanism side, in 1953 a coup was put in place to restore the Shah of Iran and overthrow the elected Prime Minister, Mohammed Moosadegh. This book makes the compelling argument that this is at the root of a great deal of the antipathy and suspicion towards the US in the middle east.

Oh, one other clarification about how anti-Americanism can emerge from Equatorial Guinea.

We know about the human rights violations. We know Mbasogo is not doing anything to curb them. We have a tradition of speaking out against dictators who do such things.

The fact that "Investment has gone up over $5 billion ... from U.S. firms" sends a clear message to Mbasogo's victims that we don't care as much about human rights as we do making money.

When US business men attempt to stifle State Department officials who expose the abuse it looks as if US business actually condones it because they have $5 billion invested in getting that oil out of there, victims be damned.

If I were a revolutionary in E.G. I think that would be a good rallying point to energize my people on, don't you?

So once again Edward, what is the solution for Exxon? Give more money to the corrupt regime so he can pay more soldiers to nip the 'revolution' in the bud? What does looking 'into the future' do for Exxon? It doesn't help the people of the state they are negotiating with. What should they have done?

Edward,

So your notion is that if Exxon paid an amount that could be defended as "fair" by some standard, it would then be possible to argue to that future revolutionary who today is a babe in arms that Exxon, i.e., the US, did NOT steal from the people of EG.

Well, it would be possible to argue that, just as, under the present conditions it will be possible to argue that Exxon is not the US.

I don't think either argument will prove convincing, and I further see no reason why the first would succeed and the second fail.

Crionna,

I don't want to turnthis into thread on accounting and finance. Let me just say that "goodwill" is not, despite its label, a measure of the reputation of the company. If the CEO helps an old lady across the street he has done a good deed, but has not added to the company's goodwill no matter how many people witnessed his kindness. Goodwill is generated when a company acquires another for more than book value, more or less. It is of importance primarily because it affects tax calculations. In this case it would accomplish nothing because putting an asset on the balance sheet that generates no cash and cannot be sold and hence is utterly useless does not increase the value of the company.

When US business men attempt to stifle State Department officials who expose the abuse it looks as if US business actually condones it because they have $5 billion invested in getting that oil out of there, victims be damned.

That certainly rings true to me. Perhaps the US government's willingness (under Clinton at the time the deal was made, post-1992 right?) to impose sanctions putting that $5B at risk was calculated into the amount offered to EG. Hardly something you'd want to discuss on 60 miniutes, to prove the deal was fair. What a mess.

Why does the discussion always seem to head toward how to change the rules to punish corporations for doing exactly what the market, we the people, want them to do, when we could change the rules to make it more profitable for them to do "the right thing" thereby aligning both interests?

Aren't those two equivalent from the market's point of view?

So your point is that people who are irrationally anti-American will become less so if Exxon gives a fair deal to the tyrant who makes their lives miserable even though America is being used as a scape-goat to deflect attention away from said tyrant? I think I still don't get it.

A better question might be, why is Exxon doing business with said tyrant in the first place?

Jonas Cord: First off, you make the classic mistake that anti-Americanism is rooted in real greivances that you are aware of - as opposed to completely imaginary and made up conspiracy theories that carry just as much weight as real ones.

Much anti-Americanism is rooted in real grievances - albeit ones that Americans frequently choose not to acknowledge.

If you've ever lived outside the US, you will find that many people outside the US can clearly distinguish between the things that the US government does, or that big US corporations do, and ordinary American people. These people have real grievances against US government/big US corporations (and, yes, sometimes they have conspiracy-theory grievances: but it would be foolish to assume that they're all conspiracy-theory grievances) but they don't blame ordinary Americans for them: their anti-Americanism is focused where they think it belongs.

Sure, you also get people who are anti-American, anti all Americans, but proportionally, they're not in the majority - at least, not in the countries I've lived and traveled in. (The UK, France, the Netherlands, China, fwiw.)

Edward's right: allowing US corporations to cheat developing countries as freely as they like is asking for trouble. Corporations may not have the ability to look that far ahead, being focused on the next quarter's profits, but that's exactly why the government should have control over aspects of a corporation's dealings: making vast profits has a social cost that can, as we see with Saudi Arabia, come back and bite you in the ass. (Indeed, one of the many reasons for the failure of the occupation in Iraq has been the determination by the Bush administration that the occupation shall be profitable to Halliburton and other US corporations - one reason why I find Moe's claimed reason for supporting Bush rather than Kerry completely hypocritical, and wish he would give an honest reason, which to date he has consistently refused to do.)

(Thanks for the facts about redistribution of oil income, Sidereal. Makes sense.)

So once again Edward, what is the solution for Exxon?

To redefine a "successful contract" within each individual sociopolitical context, and to do so with a sense of obligation to not only their shareholders and their bottom line, but also the people who own the resources they're extracting.

The argument can be made that Exxon is not the government of EG, and therefore not responsible for the interests of EG's people, but when Exxon knows the people of EG (who own that oil) are not represented well by the person they're writing checks to, they know they are taking part in a potentially disastrous business relationship. At that point, they should exercise extreme caution to ensure future EG politicians (who may actually take their responsibility of representing the people well seriously) that they have done right by their business partners in the contract.

We (US businesses, I say "we" because I own stock...not in Exxon mind, you but...) can't keep doing business this way. The piper will come and demand to be paid.

To pretend it's as simple as "Oh well, Mbasogo's the leader, he signed the contract, we get our oil at a 12% payout, I don't need to know any more than that" is to ignore the lessons we should have learned by now.

Exxon should at the very least, be working on contingency plans to pay out additional money to EG for the oil already extracted should the day come they get a noncorrupt government.

I understand Bernard, really I do, but we're talking about perceptions here, the perception of fairness that would guarantee US government intervention to protect the company's hard-assets in case of revolution. IMHO, this could be seen by some as an asset quite similar to the purchase of X comany for more than book-value because of the expectation that their customers will remain loyal for a time. Both have a perceived value, difficult to measure and yet important in any company's dealings.

To take the anology even farther, wouldn't it be nice if, like Goodwill, this asset would have to be depreciated because the world was becoming demonstrably less dangerous?

Aren't those two equivalent from the market's point of view?

I don't think so. The market generally rewards risk-takers. By punishing a company for creating a favorable position in a risky environment you drive them to seek less risk (or ways around the rules) which does nothing to help the economies of the riskiest countries nor drive down the propensity for the US government to have to go in and save the firm's assets (the truest goal, no?). However, if you incent companies to do "fair" deals in risky environments, more deals will get done with lower requirement for government involvement.

That's if you can gauge where a revolutionary leader's determination of "fair" lies.

That's if you can gauge where a revolutionary leader's determination of "fair" lies.

Which of course is the reason you can do all the things people are recommending here and still have an anti-American revolutionary come to power.

That does not, in and of itself, however argue against the reasons for doing them, nor negate the moral implications of not doing them.

I'll disagree with Edward on his 5:39 post on solutions. Exxon's sole responsibility is to its shareholders. That may involve buying insurance (or self-insuring) against impacts due to regime change, but I don't any reason that Exxon should have made anything other than the best deal it could within applicable law.

But just because applicable law is lousy, and intergovernmental solutions are hard, doesn't mean that it has to stay that way.

Most of the world's fisheries are reeling (pun intended) under the impact of new technology. The world fishing fleet has a capacity far in excess of existing supply. Solutions? Increase supply, reduce capacity (either through boat buy-outs or, more stupidly, through ever-shrinking open seasons), allow private ownership of the resource. None of these solutions will work unless the major fishing nations agree to a common set of principles, and enforce them. So there is the Law of the Sea, but so far little political will to enforce its provisions.

Fishing, and setting international standards on resource extraction contracts in the third world, are classic areas where internationalism is a necessary component of an effective solution.

I don't particularly like the idea of delegating US sovereignity to an international body. But I don't see any choice. Some very smart people wrote towards the end of the Cold War that the next conflict would not be East v West, but North v. South (where the North was the industrialized countries and the South was the developing countries). I think those writers were correct. I also think that creating a body of law, and a system of enforcement, designed to address North v. South conflict will require an unprecedented degree of interstate cooperation.

And returning to the ever-present issue of terrorism, we must remember that the ease in the international movement of people and goods leaves all Northern nations exposed.

cheers

Francis

That does not, in and of itself, however argue against the reasons for doing them, nor negate the moral implications of not doing them.

True, but it makes the books a pain to audit ;P

Exxon's sole responsibility is to its shareholders.

Not true. It has a responsibility to its employees as well. Including those living and working in Equatorial Guinea. Their safety is Exxon's responsibility.

But (not that I'm disagreeing with you, Edward: please don't think it!) it could be argued that Exxon's responsibility to its employees is discharged if it does the best it can under the circumstances at the time, to keep its employees safe. So long as corporations aren't legally required to look anywhere beyond the next quarter's profits, they won't: because that kind of behavior, however plainly disastrous in the long run, is what (in the short run) rewards CEOs and other senior employees who can make long-term changes.

Edward, a little background on the oil leases would be helpful. Are you stating that Exxon didn't compete against any other oil companies and the returns are above mkt.

Since you didn't talk about the investment required to develop the oil fields or the related infrastructure, exactly how would you know what the return is. That is, you should be able to speak to the ROI of the project and what is the average (project) market return for Africa.

Finally, crionna "goodwill" is when you purchase an asset above market value, not below JFTR.

Not true. It has a responsibility to its employees as well. Including those living and working in Equatorial Guinea. Their safety is Exxon's responsibility.

No, that's what you would want Exxon's responsibilities to be, or what its responsibilites would be if you or i were arranging things. But unless the law requires it, or unless it deems itself otherwise out of a sense of morality, a company's sole responsibilites are to its sharedholders.

Finally, crionna "goodwill" is when you purchase an asset above market value, not below JFTR.

Kinda like paying more revenue out to the government of a country than "the best possible deal" in an attempt to placate an eventual revolutionary leader?

because that kind of behavior, however plainly disastrous in the long run, is what (in the short run) rewards CEOs and other senior employees who can make long-term changes.

Don't forget the stockholders, who are the real drivers of what those employees do.

There appears to be a misconception running throught this thread. What is value? A good or service is worth what a buyer is willing to pay for it. Here's what Edward wrote originally:

"ExxonMobile should not have taken advantage of the E.G. government in setting up their production contracts "

the implication being there were other bidders willing to pay more but were somehow foreclosed from the market. There are other possibilities but that seems the most obvious.

fdl writes:

"Establish a fair market rate so the country doesn't get taken to the cleaners. "

That's a fair description of a command economy. AFAIK the track record of command economies hasn't been great in improving people's welfare. Good at producing scarcity, and subsidization of inefficient producers, however. Can someone offer a counter-example?

And who would decide what the fair price is? And what guarantees their benevolence?

Jesurgislac writes:

"Edward's right: allowing US corporations to cheat developing countries as freely as they like is asking for trouble."

For it to be a cheat you really need to present evidence that the market was closed in some way. Otherwise it's just a scurrilous allegation.

Think about something else: the claim of value which in fact exceeds the legitimate market value fosters exactly the kind of resentment the original post wants to avoid.

Goodwill is amortized as an expense, royalty payments are expensed as well. Actuall it is the Board of Directors who are the real drivers.

Edward has painted a picture that somehow Exxon ripped off some Africans. I don't know if that is the case but neither does Edwards which is a problem as well as my point.

Edward has painted a picture that somehow Exxon ripped off some Africans. I don't know if that is the case but neither does Edwards which is a problem as well as my point.

You're right Timmy. I have acknowledged that I'm basing my assumption they ripped off EG on two facts, neither of which necessarily confirms it. 1) There are countries receiveing 48% more in payouts and that's a hefty difference. and 2) Exxon refused to be interviewed on it.

In the end, however, whether they actually ripped EG off (and I'm sure they pay their lawyers the sort of salaries that buys convincing arguments they did not) is not important. What matters is what the budding revolutionary believes and gets the rest of the nation to believe. I came to the conclusion Exxon did and I have no interest in their nurtuting more anti-Americanism. Exxon could have put the whole matter to rest by appearing on 60 Minutes and explaining "investment required to develop the oil fields or the related infrastructure" etc.

I'm sure they have their reasons for not doing so, but short of hearing what they are, I'll continue to assume I'm right, Occam's Razor and all that, you know.

Given the power of editing, only a fool would appear on Sixty Minutes unless it was live. Since Sixty Minutes didn't (or couldn't) answer my questions, I would call it shoddy reporting.

I will assume that the CBS (more and more) is engaged in "yellow journalism", it is not reporting the news, it has become a part of the entertainment division. This does not preclude that Exxon didn't rip off Africans but there is no evidence of that action.

And no I didn't watch Sixty Minutes, I was preparing for the game at the Fenway.

Dave Schuler: please don't create strawmen. I didn't argue for a command economy, I argued for a REGULATED transaction.

If your power, water, sewer, trash, gas and/or cable television is not provided by a municipality or other local governmental agency, then it is likely provided by a regulated utility. Heard of them? Understand why utilities are regulated? Understand the difference between a public utility commission setting rates and a central planning office controlling an entire economy?

Had you bothered to read the substance of my posts, you'd understand that I was drawing an analogy between the market failures that have led to the regulation of utilities, and the apparent market failures of resource extraction contracts between first-world corporations and third-world countries.

ah, never mind. i've read enough of your posts on other threads to get a sense of how you argue. go ahead and create strawmen all you want. i'll just ignore them.

Francis

I was drawing an analogy between the market failures that have led to the regulation of utilities, and the apparent market failures of resource extraction contracts between first-world corporations and third-world countries

The regulation of utilities occurred because utilities were granted monopolies, not because of market failures. Apparent is the operative word in your next sentence, the biggest problem dealing with the third world is the class structure and the Swiss Bank Accounts.

fdl:

Thanks for clarifying your position. It probably could have done without sarcasm and irrelevant ad hominem attacks, however.

TTWD: a monopoly is a market failure. but natural gas / water / sewer service are natural monopolies. Do you really see a competitive market developing in your neighborhood for a sewer line?

IF x -> then Y.

If a market failure exists, -> THEN government response may be appropriate.

monopolies are one form of market failure. I'm arguing that there is pretty substantial evidence that resource extraction contracts between first world corporations and third world countries are another form of market failure. (No, not an identical form of market failure, but a similar form of market failure which nevertheless justifies governmental interference.)

how has the market failed? because the shareholders of the company get to enjoy the upside, but the US taxpayer gets to pay for the downside.

Francis

Exxonmobile has a rather bad record, I remember them from reports about Indonesia.
Royal Duch/Shell had quite a numer of these issues in Nigeria, and as a result made human rights interests and environmental issues a more structural part of their management structure and their yearly reporting. I think public opinion and pressure had a lot to do with the change there. But if you look at the sites of exxonmobile and of shell (key issues and topics) you see the difference. The only mentioning of human rights on the exxonmobile site is in a very short pressreport, stating that they condemn violations of human rights.

I don't think that the oil deal leads to more American agression on its own. Even if the people resented the company they would not immediately start hating the country for it. It might be an additional factor, but IMHO not the deciding one.

FDL, you don't get off that easy. Your proposed solution to the 'market failure' was a strict price control. That isn't a typical function of regulation. I don't think anything in this post has really supported the idea that there is much of link between Exxon's price and the posited anti-Americanism 'externality'. If anything the link is between Exxon doing business AT ALL with the hated government. And yet many on this board don't like the sanctions of say Cuba, so the position that you punish dictators by denying them trade isn't typically what you go for.

Frankly I just don't buy the idea that this 12% vs. 60% thing is going to be the focus of anti-Americanism caused by the tyrant's corruption. The link is hugely tenuous. I might be willing to buy that engaging in trade with the tyrant AT ALL is going to cause a problematic link.

monopolies are one form of market failure

Frank, well not really but it would depend on you definition of failure.

As for the problems with third world commerce, foreign capital doesn't rattle around in the local economy, it goes out the back door and directly into some unnamed Swiss town.

As for the US taxpayer and the downside, I'm not sure what you are talking about, especially with regards to Africa.

Jesurgislac,

Much anti-Americanism is rooted in real grievances - albeit ones that Americans frequently choose not to acknowledge.

Generally, I don't believe that prejudice against a particular nation (anti-Americanism in this case) generally has it's root in emotion and irrationality, not facts and honest grievances. The actual facts and grievances usually wind up propping up the opinion that was already made, in a wild stew along with some many imaginary and fantastic ones that the whole thing no longer deserves recognition as legitimate criticism or debate.

If you've ever lived outside the US, you will find that many people outside the US can clearly distinguish between the things that the US government does, or that big US corporations do, and ordinary American people.

Yes, I've lived outside of the US, spare me the boilerplate lecture.

Note however, that other governments and corporations from other countries get to run amuck, often in ways that exceed even American misdeeds, and suffer none of the prejudice, largely due to obscurity.

If prejudice against a country arises justly based on misdeeds, the prevelence of anti-Americanism would be joined with proportional amounts of prejudice against all the major world powers. This has not happened.

These people have real grievances against US government/big US corporations (and, yes, sometimes they have conspiracy-theory grievances: but it would be foolish to assume that they're all conspiracy-theory grievances) but they don't blame ordinary Americans for them: their anti-Americanism is focused where they think it belongs.

Yes, and often, where they think it belongs is on American actions even when the actions of others can be shown to be where blame is best laid.

Edward's right: allowing US corporations to cheat developing countries as freely as they like is asking for trouble. Corporations may not have the ability to look that far ahead...

You know, thinking about this issue further, the unfavorability of this deal for the regime here may have been based on how unstable and horrible he keeps his country. I mean, think about it - it's a bad investment. I know people are acting like the U.S. is going to use the military to keep this guy in power to protect ExxonMobil's investment; those who believe that are living in another era long past.

...being focused on the next quarter's profits, but that's exactly why the government should have control over aspects of a corporation's dealings: making vast profits has a social cost that can, as we see with Saudi Arabia, come back and bite you in the ass.

Saudi Arabia would be biting us on the ass, even if the contracts to drill their oil were French, German or Chinese.

That being said, I'm still all for laws prohibiting this nonsense by American companies, in Equatorial Guinea or anywhere else quite frankly.

++ungood:a company's sole responsibilites are to its shareholders

...and Exxon would be doing its shareholders no service if it didn't protect the highly paid, highly skilled engineers, geologists, and technical drilling employees that coalesce around every oil site (especially in its early stages when the geology and internal architecture of the source isn't fully mapped).

and Timmy, the movement towards regulated electrical utilities was in direct response to the chaotic markets that arose in the immediate aftermath of the advent of large scale power production. Blackouts, brownouts, electrocutions, and fires were the rule as dozens of private producers strung cheap wires through dense urban areas, selling their service door-to-door; a single apartment building would have multiple power feeds coming in from all directions. So electrical monopoly, at least, was a direct result of market failure. Just try to pitch a new deregulation plan in California now and see what everyone says about the healing hand of the free market in electricity.

Oh, and as to the topic of the post, for my money, Edward's point is more in the nature of an astute observation, rather than a policy prescription - short of granting the WTO or World Bank veto rights over the contracts of American companies with sovereign nations (a pretty horrible idea, and one that - let's face it - ain't going to happen), I don't really know what you can do about it. Exxon is making billions with a b from EG, full stop. Someday, not toolong from now, once we've all sucked a somewhat higher percentage of the world's oil out of the ground, and everybody starts to freak out a little more than they are now, an international body will probably be convened to manage all transactions involving high-volume sources like the EG fields. Until that day, however, I think that Edward - whether he intended to or not - is really just putting out a wishful thought-experiment.

But, I feel you, brother. 12% is criminal, and Exxon are a bunch of fucking pirates.

SH:

our view are not that far apart, but our remedies are. anti-americanism takes root, imho, because third world leaders can seize the oil revenues for their own personal benefit. from diamonds in sub-Saharan africa to iranian oil to central american fruit, our government has not regulated contracts between american-chartered corporations and foreign governments. as citizens of this country, we have allowed corporations that enjoy the protections of this country to pursue a foreign policy which is adverse to our interests.

all i'm saying is that, as citizens, we should put a stop to that practice.

simply put, how many more Irans are you willing to tolerate?

how many more times will US companies, supported implicitly or explicitly by US military power, strike deals with a powerful elite minority in a third world country that utterly enrages the populace?

the US created bin Laden. oops. I'd rather not do that any more.

is there ANY role for US govt policy in the contract between exxon and guinea? or do US taxpayers just have to bear the cost of the cleanup?

cheers
Francis

ps: ttwd: try looking at the photos of the dead american servicemen from the aborted rescue attempt for the iranian hostages. that's the cost to the us taxpayer.

Well Frank, thank you for that thoughtful comment, although you will have to point out to me what it has to do with the topic at hand.

ST, I suggest you look at the history of two men, Edison and Westinghouse, and understand the capital expenditure required for the delivery of energy. I think you are confusing powerlines with telephone wires or you are just generally confused.

And a link detailing what Exxon is making along with a ROI calculation on this particular African operation would be most helpful before making your assertion.

Have I just missed it or has anyone mentioned what Exxon's risk is for doing business in a country like this?

Haven't U.S. business gotten screwed around the world by different regimes coming and going?

Wouldn't they calculate that into their commission?

Seems like you made a better case for anti-Equitorial Guinea-ism than anti-Americanism, Edward. Consider what do the E.G. people see, their so-called leaders driving Lamborghinis and living like fat cats while only a lucky bunch have decent oil production jobs. A higher percentage of oil proceeds isn't going to help this kleptocracy. Where it may become a "petri dish" is when these "leaders" blame America for the shortcomings that they themselves created. Terrorists like al Qaeda aren't poor, they subscribe to an evil ideology and they exploit the poor folks over to their vile way of thinking.

Seems like you made a better case for anti-Equitorial Guinea-ism than anti-Americanism, Edward.

Thank you. I am definitely in the strongly anti-E.G. camp. Make no mistake.

As I tried to note in the original post though, BD, the politics of an uprising will get messy and BOTH sides may want a scapegoat. I fully expect the fat cats to blame America (as you note), but I also expect them to succeed so well in doing so the revolutionaries pick up the theme and run with it. I suspect the revolutionaries will then win and in doing so may demand the US pay them the rest of what was rightfully owed to the nation all along. When the US points to the legal contract, well then, things get even messier.

My grand point though is that these situations demand special considerations (what makes sense on Wall Street may be ludicrous in West Africa).
The US corporations doing business there make themselves much easier targets if their dealings have ambiguous morality hanging over them. In this case, it seems they do.

I just read your piece about American perception in
3rd world countries, of note Venezuela and Equatorial
Guinea. I think your assessment is quite off mark.
The United States will not be used as the scapegoat
for foreign dictators because of the actions of
multinationals. The US will be used as a scapegoat
because of it's ideology and power.

It was not the actions of any multinational or the
actions of the US government that caused Venezuela's
Chavez to use the US as the excuse for all problems.
It was simply Chavez doing it because he could. It is
a propaganda tool that is easy for him to use because
3rd world countries have no concept of racial
equality. Racism is an inherent part of their lives.
The world over, uneducated 3rd world populations have
basic assumptions that guide their actions. One of
the most prominent is that all white people are rich.
That in itself makes it easy for foreign dictators to
make the United states into an evil being.

In the case of Equatorial Guinea, it is a shame that
the oil companies let them have any of the money at
all. It would have been better if the country had
received perhaps a larger percentage, but not
directly. It should have been managed by the imf or
some other responsible body until it could be shown
that the country was responsible enough and well
structured enough to use it in a reasonable manner.

Sadly, this will likely never happen. The Equatorial
Guinea area has always been and still is nothing more
than a bickering bunch of tribes. All the oil
companies did was make the current tribe cement its
position over the others. There is no progress.
There is no growth. There is no prosperity... except
for the "president" and his friends. Despite the new
revenues, electricity is faulty, water pressure is
periodical, pavement is a rarity, corruption is
rampant.

That last bit... corruption is rampant... that is a
perception from a Western point of view. To the
people there, it is a way of life. it is no different
from how things have been forever in that region.
Everyone pays tribute to the ruling gang, and the
ruling gang makes the rules. It's simple, but since
EG was squeezed into the form of a country for the
sake of international identification, we feel it is
corrupt because their rulebook does not mesh with
ours. It is not a country for any other reason that
it has boundaries and a flag. Everything else is a
non-sensible farce, put in place only for the purpose
of procuring more international loans, which they
never intend to pay.

There is a mentality in places like these that western
thinkers can not understand, because western thinkers
are rational. I know how ridiculous that might sound,
but it is truer than most people are capable of
believing. Irrationality is a way of life.
Westerners look at Venezuela, and think, "How, in this
day and age can another Cuba be forming right before
my eyes"? It is almost unbelievable because of the
inherent irrationalities that such a system is built
on. How can the people there be letting this happen?

There are a couple of really good observational pieces
that can put it into real perspective. The first, for
Equatorial Guinea, is a book by Robert Klitgaard
called "Tropical Gangsters". It is the non-fiction
account of his time there trying to improve the
country. The second, for Venezuela, is a partial
translation of a book about unserstanding South
American mentality. If you follow Venezuela blogs,
you may have read it already. It is currently still
the main story on Caracas Chronicles, titled "The
Non-sense Revolution". Site is here:
http://caracaschronicles.blogspot.com/

To me one of the strangest things about your post is
how you explain that the ruling thug wastes all of the
countries wealth on himself and his family, but then
you go on to say that they should have been given
more. 60 minutes thinks they should have been given
more. EG now thinks that they should have been given
more. Many Americans (thanks to 60 minutes) believe
that they should have been given more. But nobody can
explain why giving them more is a good idea. Will
anything good come of them getting more? If yes, then
what are those things? If you believe that Obiang
will ever do anything to empower people of another
tribe, then you simply do not understand life in that
region.

I can think of some good reasons for not giving them
any of it. 1) Prevent military buildup which, in that
region, will lead to genocide campaigns. 2) Give the
people and government something to work for. If the
government can be faced with the idea that the only
way they can make more money is to grow the economy,
then it is more likeley that steps will be made to do
that. As it stands, they don't have to do anything
but sit back, collect checks, and go on international
shopping sprees whenever they want to. Oil money is
one of the worst things that could have happened to
EG.

The reason that the oil companies can't say anything
on national TV about situations like EG is that none
of the viewers have the whole picture. TV viewers all
think of EG as any other country with poverty, and a
government, and the need for money. If oil companies
were to talk openly about the truth of the situation,
they would look 50 times worse than they did for being
evasive. Why? Because people here simply don't
understand life there. Talking about the truth of it
to any typical American will make you sound like a
greedy racist hypocrite... and that's because greed,
hypocrisy, and racist notions are normal daily life
there. In EG, there is no concept of life without
those things.

If ExxonMobil gave EG 99.99% of all oil revenue,
everything there would still be the same, and still
the United States would be the scapegoat for all
poverty in the nation if the "president" so decrees it.

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