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The Case For—and Against—Increases
With passion, the oil producers defend their price increases on the ground that it is high time that the producers of raw materials get a fair shake from the richer industrial nations. Essentially, these are the oil producers' arguments:
In the past, the industrial countries grossly exploited the oil-producing countries. For too long, the terms of trade were stacked against the materials producers. While they were forced to pay ever inflating prices for their machines, medicines, food and other goods bought from the West, the developed countries not only imported oil at low, stable prices but also built industrial and consumer booms on it. Now the oil producers must build their own industries, both to get a more equitable share of the world's income and to insure themselves against the day when their petroleum resources run out. Furthermore, by keeping prices high, the producers are really doing the rest of the world a favor by forcing both energy conservation and the search for alternative resources.
The rise in oil prices, the producers go on, should not get all or even most of the blame for inflation, slow growth and balance of payments problems, which have deeper roots. Says Kuwait Oil Minister Abdel Rahman Atiqi: "Why should we be responsible for helping the U.S., for instance, solve its economic problems? When our Arab lands were impoverished and our oil was being sold at giveaway prices, what assistance did the U.S. give us?"
The producers are not at all defensive about acting as a cartel. They contend that they learned all about cartels from the large Western oil companies, which for decades acted in concert and kept prices low. Cartels, in short, are neither unique nor forbidden by any international law. If buyers really want to moderate prices, say the producers, they should limit the international oil companies' "obscene" profits or lower their own taxes on oil products (taxes account for about 25% of the price of gasoline in the U.S. and 54% in France).
On one level, it is impossible to quarrel with the producers for trying to get the most out of their resources and charging as much as they think they can get. But the producers often go far beyond the usual economic considerations of supply and demand, basing much of their case on fairness of prices, profits and shares of the world's wealth. Arguments about fairness are tricky, of course, and cut both ways. Surely other nations would be enraged if, for example, the U.S., Canada, Australia and France formed an Organization of Grain Exporting Countries (OGEC) and decreed a fivefold increase in the price of wheat, of which they are the major world suppliers. True, U.S. wheat prices jumped 192% in the two years up to last November, but that was a free-market surge caused largely by disastrous crop failures around the world during a period of rising demand. In the same two-year period, OPEC's major imports have risen much less: for example, cement, 27%, heavy trucks, 25%.
The OPEC nations cannot accurately argue—either in terms of economics or "fairness"—that the sharp rise to $10.12 per bbl. is needed to make up for the recent inflation in the price of goods that they