Wednesday, 6 October 2010

Truth, Lies, Oil and Scotland - Part 4

1 comment:

Phil Knight said...

Tony Benn's analysis is quite correct here. I've read that the oil companies greatly feared Benn because he was such a formidable negotiator, and were quite relieved when he was out of the way. I've also read numerous accounts of how the IMF bailout was unnecessary (the UK's deficit during this period is dwarfed by our current deficit) though I really need to research this more.

That said, the crucial thing about North Sea oil was not the tax revenues or its value as a strategic asset (important though these were), but simply that it helped to break the pricing power of OPEC. The crisis of the '70's was sandwiched by two "oil shocks" (in 1973 and 1979) and I believe the two great crisis moments (the three-day week and the winter of discontent) were firmly the result of them.

It was these oil shocks which resulted in the two great inflation spikes of that decade. Oil price inflation causes these kinds of spikes because almost all goods are transported to market using petroleum, so not just the price of petrol rises but the price of pretty much everything. Again, these vertiginous rises in inflation are disruptive to the labour market because workers see the purchasing power of their wages decline substantially, and respond by demanding compensatory rises, which management are unwilling to grant (beyond the fact that they don't want to increase wages in principle) as they don't want to be left holding the bag if inflation subsides. I therefore believe that much of the industrial unrest of the period was a result of these oil shocks.

The ending of OPEC pricing power led to the oil glut of the '80's ( which gave Thatcher a much more stable base from which to conduct policy.

Also the decline of the manufacturing base in an oil economy is an observed phenomenon known as Dutch disease:

Finally, if you own any old vinyl records, you can often gauge what year they were pressed by their thickness. Records pressed around 1973-75 and 1979-81 tend to be thinner than the norm as the record companies tried to reduce raw material costs of oil-based vinyl.