Israel Trips Over Basic Economics

Bureaucrats with vision can be helpful.  Without vision, and when lacking understanding, they can be disastrous to a county's economic health.  Consider Israel's oil and gas finds in the Mediterranean.  The news sounded great.  Assured fuel for Israel.

But, then the bickering began.  How much gas for Israel and how much for export?  Not all that easy a question, but one that was dealt with.

Now, some bureau that deals with monopolies steps in.  "We're giving these big oil companies a monopoly."  Monopoly, oligopoly, schmolopoly -- sure, but what are the underlying issues?)  Yes, a free market is generally the most efficient market.  Restraining a free market leads to inefficiencies and poorer economic growth.  Okay, so much for economics 101.

Now, let's turn to the real world where we sometimes find situations where a perfectly competitive environment doesn't exist.  In the old days, GM, Ford, and Chrysler had a virtual lock on the American automotive market.  This did, in fact, result in an unhealthy economic state of affairs that was corrected only when the Japanese finally got a foot in the U.S. market.  That would, of course, seem to justify attacking oligopolies.

Not quite.  Consider airplane construction.  Consider Boeing versus Airbus.  These are industries of an even larger dimension than automotives.  It's an industry where American manufacturers contributed over $118 billion, in 2012,  in an export surplus.  And, this from and industry that was largely monopolistic.  Note: The U.S. production of cars and parts in 2012 amounted to $32 billion -- a big number but one, nevertheless, over shadowed by aeronautics.

What distinguishes these industries is the huge capital investment needed to be a player.  It must also be noted that, when you get to companies of this size, the cooperation of governments that profit from their services becomes critical.  That brings us to the oil and gas industries.  Here again, only very large companies have the assets needed to participate.  And, by participate, I mean to participate on a global scale.

Let's turn our attention to Israel and its off shore discoveries.  To those of us who love her, Israel is the most important spot on the earth.  And, in terms of acreage, it is indeed a "spot".  But, its discoveries amount to just one discovery among many when you consider exploration on a global scale.  It nevertheless took an enormous amount of money to make the find.  It will take lots more to exploit it.  "Exploiting" will take more than simply retrieving it and sending the oil and gas to eager customers.  It will mean protecting this resource against attacks from Israel's numerous enemies.

How many companies do you imagine would want to get involved with helping Israel in the face of opposition from oil-rich, Islamic nations who would be delighted if Israel never got to retrieve a spoonful of its bounty of gas and oil?  There are probably less such companies than you can count on the fingers of one hand.  These stalwart companies should be viewed as valued partners rather than as blood-sucking monopolies.