www.vheadline.com Posted: Monday, March 17, 2003 By: Hector Dauphin-Gloire

Date: Mon, 17 Mar 2003 09:44:08 -0500 From: Hector Dauphin-Gloire montonero22@hotmail.com To: editor@vheadline.com Subject: Comments on the Asian Model

Dear Editor: I write to comment on Daniel Burnett's letter suggesting a way out of Venezuela's economic crisis. I would like first of all to compliment him on the article, it was a very incisive and well-thought-out piece and I think it contained a lot of truth. I do however have one or two thoughts of my own to add. While I am not trained in economics, I have read some history ... so my comments are coming more from a historical than an economists' perspective.

Mr. Burnett argues, convincingly, that much attention must be paid to the record of the East Asian countries in developing their economies. One thing to bear in mind, however, is that like every country, the economic development in these countries bore a human cost.

With the exception of semi-authoritarian Singapore, the groundwork of economic development in these countries was laid during periods of extreme authoritarianism. This allowed harsh measures to be pushed through and labor unions, etc. to be suppressed. That is not to say, necessarily, that it was not an acceptable price to pay ... only the people in those countries can answer that question.

It does mean however that we should consider the cost before we encourage Venezuela to go down that road.

A further flaw in the East Asian model is that most of these countries have had low levels of social provision (unemployment benefits, welfare benefits, etc.). On the flip side, Taiwan and South Korea have accomplished something almost unknown in the capitalist world ... extremely low levels of social inequality combined with a capitalist system. For these reasons, despite my criticisms, I do have much admiration for the Asian model, and perhaps it is indeed a good way forward for Venezuela.

My own ideal, however, would borrow some from the Asian model, but also from the idea of cooperative economics. Mr. Burnett describes socialism as a system where the State owns and coordinates economic activity in the interests of social justice and equality. He offers a very lucid and accurate analysis of the strengths and weaknesses of socialist economies in the past.

The great lesson of the second half of the twentieth century, I believe, is that while socialism can do great things for developing countries, ultimately the effort is futile unless they industrialize their economies at the same time ... otherwise it comes down to socializing poverty. (Although one could argue that it is certainly better to be poor in Cuba, where some necessities of life are guaranteed, than in most other countries). But in truth, I believe that socialism depends on SOCIAL ownership, not necessarily State ownership ... and this social ownership can take many forms.

We know, as Mr. Burnett states, that State-owned companies are often economically inefficient, and that therefore a State-run command economy is not the way forward. (Although this is not necessarily always true- PDVSA, Renault, and the Brazilian oil company are all examples of nationalized industries which have continued to run profitably).

But this says more, I think, about the fact that these companies are centralized than the fact that they are non-capitalist.

Centralization produces corruption and sclerosis ... as has been amply demonstrated ... whether the company is public or private, and whether it operates for a profit or for social objectives.

What if factories and industries were owned not by the State, nor by private investors, but rather by the people who worked in those industries themselves?

Such a system would assuredly be more egalitarian than capitalism (since there would be no distinction between workers and capitalists), and more efficient than communism (since ownership would be more decentralized, more responsive to the needs of employees, consumers, and the market, and more flexible).

Cooperative economics, while historically a common form of economy particularly in the great civilizations of South America (witness the Ayllu farms of the great Inca Empire) has in modern times been largely ignored.

The capitalist countries, of course, did not want a challenge to their social hierarchy which has an investor class and a working class; and the socialist countries felt that only State ownership could overcome the anarchy and irrationality (as they saw it) of the market.

Indeed, this was one of the fatal mistakes of the whole socialist movement, and doomed their project ... to rely on State rather than cooperative ownership. However, in the few instances where it has been tried, cooperative economics has been highly successful.

The commonly cited example is Yugoslavia, which during the 1970s and 1980s had a productive, growing economy, with more equality than the West and more freedom and efficiency than the countries of the East.

Yugoslavia had a market economy ... but it was not capitalist because factories were owned by the workers themselves, who then elected their own managers and shared the profits from the industry equally. Yugoslavia had its own economic problems caused by the cooperative model, including high unemployment ... but, on balance, I believe that their model was better than either capitalist or state-socialist ownership.

Other examples of the cooperative mode of production include the Yarur textile industry, and other agricultural or industrial enterprises, during both the Christian-Democratic and Allende years in Chile; the Mondragon cooperative in Spain; the ejido farm system in Mexico; and the farms that are being set up in Brazil by the Landless Workers' Movement.

The important thing to realize about cooperative socialism is that it doesn't rule out the market mechanism. On the contrary, no healthy economy can survive in the modern world without some kind of market. However, for a market economy to serve the common good, people need both an egalitarian social system ... so that they are bargaining with each other on a level playing field ... and a spirit of social solidarity, so that greed and self-interest do not become the driver of all economic relations.

Both of these advances, the social one and the moral one, can be provided by a system in which we have decentralized cooperative ownership. Of course, such a system can be combined with the Asian model, in which there is heavy state investment and export-oriented development.

In fact, that is what I believe represents the best way forward for the countries of the Global South -- the Asian model, within an economic framework of cooperative ownership, where relatively few enterprises are owned either by the State or by private individuals.

I hope that these thoughts have been able to supplement Mr. Burnett's ideas for a new Venezuela, and I conclude by agreeing with him ... the economic development of any nation is always a slow, painful process, with much cost in suffering involved ... but at the end of the road, it is necessary if the countries of the global South are to regain their once proud place in the world.

Sincerely, Hector Dauphin-Gloire montonero22@hotmail.com Environmental Technician

reuters.com Mon March 17, 2003 02:05 PM ET

NEW YORK (Reuters) - World oil prices eased further on Monday as dealers wager that the looming war in Iraq would be short and inflict only limited damage on Middle East oil flows. The possibility that the United States could release oil from its 600-million-barrel emergency oil stockpile further weighed on prices, which have fallen more than eight percent over the last three trading sessions.

"The market believes the war will be short and quick, so there should be a relatively soft landing for crude prices," said Charlie Luke at Aberdeen Asset Management.

U.S. light crude futures dropped 63 cents to $34.75 per barrel, down from a 12-year high of $39.99 hit late last month. That is $6 short of a $41.15 all-time peak during the 1990-91 Gulf War crisis.

Brent crude oil fell 71 cents to $29.42 per barrel on London's International Petroleum Exchange, which was forced to close for two hours when anti-war protesters raided the London market waving banners saying "Oil fuels war."

Prices fell as the United States and its allies ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, clearing the way to launch war without Security Council authority.

Speculative investors that fueled a 60 percent rise in oil prices in just over three months are now selling to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices sank from over $30 to barely $20 when the U.S. launched its January 1991 offensive as it became clear that Iraq would not harm oilfields in Saudi Arabia.

But prices could quickly go back up if Iraq inflicts substantial damage on its own oilfields, or the war is prolonged, analysts said. Iraq and its Gulf neighbors together pump about 40 percent of global crude exports.

U.S. plans to quickly secure Iraq's northern Kirkuk oilfields in the event of war has also been undercut by Turkey's refusal to let U.S. troops through its territory.

"The market is betting on a short, straightforward campaign that would be over fairly quickly," said Steve Turner of Commerzbank in London.

"But there is definitely upside if the war is long and difficult and there are repercussions across the Middle East."

NO MARGIN FOR ERROR

A cold winter and prolonged supply hitch from Venezuela simultaneously drained commercial stockpiles to historic lows, and the OPEC oil cartel has little spare production capacity to cover further supply disruption.

U.S. gasoline pump prices have already hit a new all-time high of $1.719 a gallon for an average price of regular unleaded, the American Automobile Association said on Monday. A sustained increase in energy costs could further weaken an already soft economy, analysts say.

Iraq's U.N.-supervised oil exports, which recently averaged almost two million barrels daily, will slow to a trickle this week as dealers have already stopped buying for fear of an imminent attack.

Iraq's two authorized export terminals in Turkey and the Gulf were both idle early on Monday. The United Nations later announced that it was pulling out all inspectors, including oil monitors.

Further pressuring prices, the chairman of the U.S. House Energy and Commerce Committee said the Energy Department told him the Strategic Petroleum Reserve is ready to release oil to counter a disruption in crude supplies, if necessary.

"The SPR has, for some time now, transitioned from the 'fill' mode to the 'flow' mode and is prepared to flow upon orders from the President," Republican Rep. Billy Tauzin said in a letter to fellow lawmakers.

The United States and other members of the International Energy Agency (IEA), which comprises 26 industrialized nations, has said that it will allow OPEC oil producers to try to cover any shortages in war, releasing inventories from emergency stockpiles only as a last resort.

The IEA built strategic oil reserves after the 1974 Arab oil embargo. They were last used in the 1990-91 Gulf War after Iraq's invasion of Kuwait.

reuters.com Mon March 17, 2003 01:46 PM ET By Tom Doggett

WASHINGTON (Reuters) - As a possible war on Iraq looms, the U.S. Energy Department is ready to release oil from the nation's emergency stockpile if needed to counter any disruption in crude supplies, the Republican head of the House Energy and Commerce Committee said on Monday.

A war with Baghdad would shut down Iraq's 1.7 million barrels a day in oil exports. However, there are market fears that military action could also disrupt oil shipments from neighboring Saudi Arabia and Kuwait.

Rep. Billy Tauzin, the Louisiana Republican who chairs the House energy panel, said the Strategic Petroleum Reserve (SPR) was ready to be used if needed.

"Our review with the Department of Energy has convinced me that the SPR is fully operational and capable of releasing crude oil within the parameters required to prevent interruptions in crude oil deliveries to the market," Tauzin said in a letter to fellow lawmakers.

"The SPR has, for some time now, transitioned from the 'fill' mode to the 'flow' mode and is prepared to flow upon orders from the president," Tauzin said.

Oil markets have been skittish in recent weeks due to the possible war, supply disruptions in Venezuela and skyrocketing prices. Tauzin made his comments in a letter to U.S. lawmakers urging their support to expand the reserve to 1 billion barrels from its current capacity of 700 million barrels.

Congress created the stockpile in 1975 after the Arab oil embargo. It now holds 599 million barrels of crude in underground salt caverns at four sites in Texas and Louisiana.

An Energy Department spokeswoman said she had not seen the Tauzin letter and could not comment on it directly.

'NOTHING NEW'

However, she said there was "nothing new" with the administration's position on when and if it will use the emergency reserve.

She repeated comments by U.S. Energy Secretary Spencer Abraham that the administration "was prepared" to tap the reserve if there was a severe oil supply disruption.

"But at this point we have not made a decision to move on the Strategic Petroleum Reserve," the spokeswoman said. "We are monitoring the situation very carefully."

The price of U.S. oil traded at the New York Mercantile Exchange fell on Monday on talk that the United States was ready to release oil from its emergency reserves if war broke out with Iraq.

At 12:40 EST (1740 GMT), crude oil for delivery in April was down 83 cents at $34.55 a barrel.

If the administration decided to release oil from the SPR, the reserve's crude could be moved into the market between 10 and 15 days after a drawdown order from President Bush.

A White House spokesman would not say if Bush would include an announcement regarding the oil reserve in his televised address to the American people Monday at 8 p.m. EST.

reuters.com Mon March 17, 2003 01:42 PM ET By Richard Valdmanis

NEW YORK (Reuters) - U.S. gasoline prices are at all-time highs at the pumps due to thin supplies and fears that a war on Iraq could disrupt oil shipments from the Middle East, the American Automobile Association (AAA) said on Monday.

Retail gasoline prices are roughly 50 cents a gallon higher than they were a year ago, the AAA said.

Energy experts say they expect prices to continue higher as spring weather tempts drivers back onto the roads and boosts demand during a time of war -- a situation that could threaten a U.S. economic recovery by cutting discretionary spending.

The American Petroleum Institute (API), which represents a number of big U.S. oil companies, has said that the surge in retail gasoline prices can be justified by a dramatic rise in the cost of crude oil as dealers fret over potential supply woes in the event of war.

But the price boom has again raised concern over potential price-gouging by retailers, with a group of Midwest lawmakers already calling for stringent monitoring of pump prices to ensure fair pricing.

The average price of regular unleaded gasoline hit a record $1.719 a gallon on March 15, with prices breaching the $2 mark in a number of major cities, according to the AAA's latest survey of more than 60,000 self-serve stations.

Crude oil futures prices were hovering around $35 a barrel Monday, up about 35 percent in four months as tensions rose between Washington and Baghdad and amid supply disruptions from OPEC-member Venezuela due to a national strike there.

In a sign that an attack on Iraq is nearing, the United States, Britain and Spain on Monday ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, paving the way for war. United Nations weapons inspectors were withdrawn.

President Bush will demand in a speech to the American people on Monday night that President Saddam Hussein leave Iraq to avoid an attack, a White House spokesman said.

The AAA, the nation's largest automobile and travel association, said in a statement last week that motorists should avoid "panic buying" in the event of a U.S. invasion of Iraq because it has "the potential of causing needless fuel shortages in local areas."

www.msnbc.com NEW YORK, March 17 — Time is running out for extra oil supplies expected from the OPEC cartel to hit U.S. shores and allow the world’s biggest fuel consumer to smoothly build gasoline supplies ahead of the summer driving season.
THE SITUATION COULD MARK a large problem for the United States, leaving it more dependent on imports than ever at a time when the White House pushes to the brink of war on Iraq and retail gasoline prices hit all-time highs, threatening an economic recovery. “The U.S. needs large slugs of extra oil to cope with the increase in (refinery) runs, stop the erosion of inventories and to begin to claw back some cover,” JP Morgan said in a research note. “The U.S. oil market is undersupplied.” U.S. gas prices hit record highs U.S. oil stockpiles have fallen below 270 million barrels, the government’s suggested level for seamless operations, as supply disruptions from Venezuela and an unusually long, cold winter drained supplies.
The resulting low oil inventories, near the lowest level since 1975, will prove a problem for U.S. fuel suppliers, who tend to use the brief respite in consumer demand in the second quarter to refine more crude oil and build fuel stocks ahead of higher summer gasoline demand. “The main problem is that while global oil demand does indeed hit a minimum in (the second quarter), U.S. crude oil runs increase,” said JP Morgan, meaning deeper declines in crude supply are likely if imports don’t shoot higher. The U.S. second-quarter increase in crude oil demand averaged roughly 1 million barrels per day in 2001 and 2002, and is expected to be even sharper this year as the industry struggles to buffer paper-thin inventories — requiring a strong increase in imports.
“There’s potential for trouble,” said Tim Evans, senior analyst at IFR-Pegasus. “Low crude inventories limit the extent to which higher refinery rates can be sustained. But the cavalry rising up over the hillside is represented by OPEC, which has already started pumping away.” OPEC, which accounts for 60 percent of world oil exports, has signaled it will defend against global short supply by upping shipment volumes even as the group declines to lift its official production curbs due to worries over overall weakness in global demand. OPEC powerhouse Saudi Arabia has already raised production sharply in the first two months of this year to make up for lost Venezuelan supply. Tanker brokers said on Friday the kingdom snapped up 14 tankers to move 29.5 million barrels of crude oil to the U.S. Gulf for May delivery. So far, the increased production has yet to translate into higher U.S. crude stockpiles.
And, while Saudi Arabia has reassured the market it will continue to pump more oil in the event of a war, there are doubts whether Riyadh has enough spare capacity to compensate fully for disruptions from Iraq, which has a sustainable export capacity of 2.2 million bpd. The International Energy Agency in a monthly report on the oil market outlook released on Wednesday estimated that OPEC in total has only 900,000 bpd to spare, with 400,000 bpd in Saudi. If crude supplies become scarce enough to hinder the U.S. oil industry’s attempt to build up gasoline supplies before summer, pump prices are likely to continue to surge, pushing through record levels. The average retail price of gasoline in the United States on Saturday was $1.719 a gallon, a new all-time high, according to the American Automobile Association’s latest survey.
The inventory situation in the U.S. has worried the White House enough to consider the use of a release of the nation’s Strategic Petroleum Reserve — a move reserved for only the most dire of supply crunches. U.S. Energy Secretary Spencer Abraham said on Friday Washington reserved the right to make a unilateral release of crude from the emergency reserve in the event of a severe supply disruption. The statement came after a similar comment from Japan, which said it would tap its reserve if Iraq is invaded by U.S.-led forces.