The principle that self-regulation and competition can be substitutes for direct public control of key sectors of the economy has been dealt a near fatal blow by the failures in the banking sector around the world.Â For some of us the idea that business could be trusted to apply Corporate Social Responsibility was always a myth – the irresponsibility and total lack of any sense of social obligation demonstrated in the financial sector should be the final proof of this for any doubters.
But it isnâ€™t just in the world of banking that Governments and extra-Governmental bodies should be looking hard at whether the private sector can be trusted to act in the public interest. Indeed a strong argument can be made that the dysfunctionality that drove western banking systems onto the rocks applies also in other important and strategic businesses. Top of the list should be the energy industry, and for the same reasons as applied to banks and others in the financial sector. Energy, like money, is an essential element in all of business and, of course, across society as a whole. All the main segments of the economy such as (inter alia) manufacturing, transport, construction, healthcare and the retailing sector require energy, just as they require liquidity, in order to do their business.
Â The case for power generation and for the primary supply of natural gas to be subject to strict Government regulation is self-evident and, indeed, in many countries this is recognised by part public ownership of the sector. In France, for example, the main supplier of electricity Ã‰lectricitÃ© de France (EDF) is overwhelmingly public owned.Â In a world in turmoil the case for further extensions of this, with EDF as the model, elsewhere in Europe can convincingly be made. More controversial perhaps, but no less necessary, is the argument for much stronger regulation by means of part public ownership of the oil sector â€“ or at least the exploration, production and refining part of the industry.
The extreme cases of Enron, and the recent somewhat less blameworthy but none the less shocking misbehaviours of European oil companies like Shell, BP and Total, have shown that the â€œsoft touchâ€ regulation of the oil industry just doesnâ€™t work â€“ or rather it doesnâ€™t guarantee that decisions that private sector oil industry leaders make are necessarily in the public interest.Â The parallels with the discredited banking sector are clear. The leaders of investment and commercial banks alike were paying themselves hugely escalating remuneration in recent years and are now rightly being castigated for this. But the head honchos of the oil industry have been no less self-rewarding. In ten years, for example, the remuneration of the top man in Shell has risen from a little over $2million per annum to $13million. This nearly seven fold increase has hardly been justified by improved performance and certainly not as compensation for inflation. It has only been justified on the grounds that such increases and bonuses were happening all over the business sectorâ€“ from Lehman Brothers to the greedy criminals of Enron, for example. Greed leads to greed in an exponential spiral of excess.
The strategic nature of the oil industry is on its own sufficient justification for tighter regulation, even if there had not been dysfunctional excess at the top. Factor in the very real challenge that governments have to protect the environment and to diversify as far as possible away from unreliable sources of hydrocarbon supply (the goal of â€œenergy independenceâ€) and you have a sound case for not leaving it to the markets. Add in the fact that a corporation like Shell, BP or Total has a duty to its shareholders above any of its other duties â€“ which leads to the profit and cash generation imperatives being more important than any other. But, as we have seen, the pursuit of personal reward by top executives, driven by a pursuit of profit above everything else, can lead to disaster â€“ as it has in the banking sector and as it did for Enron and very nearly for Shell as well at the time of its â€œreserves crisisâ€ a few years ago.Â
There is a final and compelling case for the oil supply sector in Europe to be drastically reformed â€“ and that is that at present, huge though they are, the European oil companies are just not strong enough to compete with those National Oil Companies (NOCs) in the main producing countries. The largest oil companies in the world are not in the private sector â€“ they are in the Middle East, Venezuela, Russia, China etc. â€“ and all of them are 100% or substantially publicly owned. What is needed is for Europeâ€™s four oil giants (Shell, BP, Total and Repsol) to merge under EU auspices. The new European Oil company would, by virtue of its part publicly owned structure (probably by creating preference shares which gave controlling rights) then need to divest itself of its marketing assets (petrol stations etc.) which recent history has shown are better managed by proper marketers like Carrefour, Tesco or Asda than by vertically integrated oil companies. This would avoid charges that the new â€œEuroOilâ€ giant would be a retail monopoly against the consumer interest.
The huge benefit of having a publicly owned and publicly accountable oil giant in Europe is that strategic decisions would be made on grounds of public interest by (ultimately) people accountable to the public in elections. Duplication and conflicts of interest would be avoided and efficiencies would be improved. Ethics, environmental priorities, health and safetyÂ and energy diversification imperatives would play an important part in decision-making and revenues would be re-invested in the business rather than being frittered away in share buy-backs as at present is common. Difficult times need radical thinking â€“ and this is one idea that is in line with the needs of the time.