The Oil Crisis is Changing Globalization

Four years ago the US economist Jeremy Rifkin was certain that if oil prices rose above $50 a barrel the global economy would be endangered. Today, he still believes he is correct. Why?

Timid statements aren’t Jeremy Rifkin’s style. The economist and author of numerous best sellers likes to measure world events with big steps. In the past decade alone he has predicted The End of Work, laid to rest Market Capitalism and called forth the age of the Network Economy. With such powerful words, he rose to be an advisor to governments, but lost status among many economists. By the end of the 1980s, Time magazine called him The Most Hated Man in Science.

Four years ago he presciently predicted that rising oil prices combined with a weakening dollar would plunge the USA into a serious crisis and cause a “perfect storm” that would blow down the economy if the price surpassed $50 a barrel. Within a year, the cost of oil nearly doubled that mark and since has hit a record $135 a barrel and the European and American economies appear relatively unscathed. Therefore the question, “Professor Rifkin have you been overtaken by realities?”

“Not in the least,” the economist says today, four years later, in a Zeit Online interview. “With the surpassing of the $50 line, a new era began.” Since then, the world has been heading toward a time of tight oil supplies and the economic engines have been stalling. Economic activity already paid a price in dynamics, airlines have been driven to their knees by rising jet fuel prices and truckers are demonstrating against high diesel and gasoline prices. Added to that, consumer spending in the USA is down due to the high price of oil. As incomes are stagnating, prices for heating, electricity and gas are rising, leaving less money in consumer’s pockets. In short, Rifkin still sees his $50 wager as correct.

Rifkin also fields a second argument: the food crisis in developing countries. In the 100 poorest countries, high oil prices are exacerbating hunger and poverty. Because higher energy costs have made the growth and production of foodstuffs more expensive, millions today are more threatened by hunger and starvation than they were six months ago. “These people stand at the brink of a possible disaster,” Rifkin says. “What we are witnessing is a dramatic, breathtaking social exclusion of a large portion of humanity.” That has nothing to do with a stable world economy.

But what happened to the argument that industrialized nations need far less oil to achieve the same results today than they did several decades ago? Doesn’t that at least permit industrialized nations to confront bottlenecks with greater objectivity?

It actually is “good news” that many industries learned lessons from the two oil shocks of the 1970s, Rifkin says. Many companies in the industrialized west need less oil today to produce automobiles, machines or medicines. But worldwide, relatively few companies take the subject seriously enough. Others are only now beginning to act. “It has to be accelerated,” says Rifkin. Because high prices for oil, gasoline and natural gas are already changing the rules of globalization.

The economists’ argument isn’t new and it goes like this: Until now, there have been incentives for western companies to transfer production to cheap-labor countries because energy costs were low and transporting goods between nations was relatively cheap. As kerosene and gasoline prices rise, however, exporting work to other nations becomes less profitable. This is why developing countries with their cheap labor markets are less able to attract capital than previously.

It also means that labor costs will lessen in importance and energy costs will become more important. Thus, the odds are changing: “Those who decrease their energy costs and minimize their carbon emissions will profit. But those who do not will be caught in the trap of rising gasoline and oil prices,” Rifkin says.

Economists agree that developing countries such as China and India will be especially impacted because their factories use far more oil than their western counterparts. These countries, therefore, will have no opportunity for further growth as long as they remain dependent on old energy sources like uranium, gas and coal. Prices for these conventional energy sources will rise along with oil prices.

“India and China must employ energy more efficiently and usher in a third industrial revolution,” says Rifkin. Otherwise, a battle for remaining resources and international conflicts will take place as it did back when industrialization began.

Is there any chance that oil prices will at least temporarily come down? Perhaps, says Rifkin, albeit not to levels the market was accustomed to for decades. “Oil may sink to $80 or $90 per barrel, but never again below $50,” he says. That’s because it’s not just the oil producing countries that determine the price. The weak dollar, for example, forces them to compensate by raising prices. “Such an argument misses the larger picture,” says Rifkin. “For years, we have been consuming three times as much crude oil as we are discovering. The fact is, we’re approaching the point where half the available oil will be used up, so-called Peak Oil,” he says.

How long it will take for what Rifkin calls the “endgame” to be played out depends, among other things, on when the peak point of oil production takes place. Here there are no sure insights. Economists are only certain that the world faces a long period of oil scarcity. “I don’t think we’ve yet understood the meaning of this moment,” he says.