The Organization of Petroleum Exporting Countries is net beneficial to modern society

admin (PRO)
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deleted user (CON)
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admin (PRO)
I thank my opponent for doing this debate with me, and Stag for the tournament we're competing in.

In this debate I intend to show that OPEC (the so-called Organization of Petroleum Exporting Counties) is net beneficial to our society (meaning more good than bad). I'll do that by providing a number of arguments showing why OPEC is awesome, and refuting any claims con may put forward for why OPEC isn't awesome.

In case you didn't know, OPEC is a giant group of governments who pretty much fix the price and (usually) supply of petroleum oil. It's my contention that OPEC is good primarily just like fair trade chocolate is good - or fair trade anything for that matter. OPEC exists to ensure fair trade.

Petroleum Exporting Societies

For countries like Saudi Arabia, pretty much all their wealth depends on the oil price. Venezuela is another example - over 95% of their earnings are from oil. At the time of the foundation of OPEC in 1960, the seven big oil companies could pretty much set the price of oil. The bargaining power of any one individual exporter was relatively low compared with what those exporters could achieve working together, and in turn, the power of the major oil companies (BP, Shell and the like) was relatively high. While today we see oil-rich nations wallow in cash in places like Saudi or Bahrain, things weren't always so. It was rarely in the best business interests of the oil companies to maximize the earnings of the exporters, so those countries used to be rife with poverty.

Here's how it works. Petroleum is rarely just consumed. Often it is actually manufactured into other products. Those products are then sold back to petroleum exporting societies. If those societies don't earn enough from their raw material exports (which they often didn't prior to OPEC) to get the petroleum products they import, then there's a significant manufacturing problem and oil-rich countries would be doomed to poverty. Even despite OPEC's best efforts, we saw that happen recently in the case of Indonesia, who had to pull out of OPEC (mostly because a lot of that wealth was stripped from them by corruption and rapidly rising domestic demand for both petroleum and finished goods).

OPEC stands for fair income for oil producers, much like fair trade chocolate organizations stand for fair income for chocolate producers through ensuring good, collective bargaining with suppliers (or in rare occasions, actually doing direct supply). Like all fair trade organizations, OPEC makes sure oil producers get the returns they need, at least to sustain themselves. Without collective bargaining action, this is nigh impossible. Just prior to the formation of OPEC, oil companies had dropped what petroleum exporting societies earned to less than five cents per barrel of crude oil - a piddly amount even by historical standards.

Inequality does remain an issue in many OPEC nations like Nigeria, but it is nothing today like it was prior to OPEC. This is for a number of reasons. First, we see much of the newfound wealth of these countries does go into public goods, swimming pools, roads, cool buildings, Emirates airlines, other infrastructure etc. This wealth is shared by everybody. It's now easier than ever before to buy authentic middle eastern rugs, for example, as a direct consequence of the ease of importing them to the west. More locally, governments have implemented initiatives for water supply, health-care, education and other projects to alleviate some of the extreme suffering that used to be so common, and provide for the basics of life so that people have a much greater shot at success. To be clear, the vast majority of the wealth is reinvested into making what were previously some of the poorest countries in the world, not only livable, but awesome.

Further, an executive of some oil company in London or New York is considerably less likely to understand what's going on with the local economy than the friendly manager at your local oil well. Much like Wall Street are often said to just look out for each other, so it is with oil-supplying communities. Local business is great for these people because their concerns can actually be heard. We saw that happen recently with the Arab Spring, and now in response there is a strong push by many nations in OPEC to raise oil prices to fix some of the legitimate concerns people had of their authorities.

There are other policy incentives OPEC requires of its member states, which are often not so obvious. An example is the requirement to join various UN climate change conventions which those nations otherwise would have little incentive to do, which ensures quality of life for human society now and into the future.

Price and Supply

Much of the world depends on both steady supply and low price of petroleum. Keeping the economy strong is great for society, and cheap, reliable, useful imports are crucial to achieving that, especially with petroleum, where demand is typically considered very inelastic.

By agreeing to production and price targets, OPEC nations can sell at a higher price, a form of price-fixing that the oil companies can't help. In return, the supply of oil is massively increased and kept reliable and steady. OPEC nations can reduce global oil prices on a whim by simply supplying more. If you don't believe that OPEC supply means lower oil prices, a great example are the US oil shocks in the 70s, spurred by the OPEC embargo on exports to the US, causing a massive global economic recession. That came because of a high price of petroleum, which came because of low supply, which came because of the embargo by OPEC. As well as this, OPEC has more than enough scale and reserves between them to keep a global, steady supply of petroleum going.

Before anyone asks "but wouldn't supply be even higher if OPEC didn't restrict it at all", this is far from the case because nations would still restrict oil output under the alternative (no OPEC) - they simply would not co-ordinate it. Within OPEC the key interest may be largely to sustain a fair income for petroleum, but there is also a significant lobbying faction, headed by Saudi Arabia (who have been flooding the market with cheap crude oil since the mid 1980s) with an interest in providing a reliable and cheap supply to prevent the development of alternative fuels by first world nations, which could harm long-term prospects for OPEC. As such, nations like Venezuela, Libya or Iraq may be more open to alternative narratives and being influenced by these proposals, compared to how they otherwise might have acted.

Bear in mind that prior to OPEC, oil companies themselves formed a cartel specifically to maximize their profits. This cartel - known as "the seven sisters" - was broken by OPEC with the oil shocks of the 70s, as the "sisters" were given each much greater incentives to cheat on the cartel. The seven sisters arrangement basically maximized profits only for a small number of corporate shareholders, leaving consumers and oil companies out in the cold, high and dry. Even though OPEC was already well in action, the price you'd pay for petrol at the pump still generally declined throughout the 60s - the change was merely in whom the money was going to.

There are also other impacts here that might be more subtle. When workers know that they'll be getting fair profit from their oil, they may take just a little bit of extra care in its production. That means higher quality petrol for us to enjoy, and for those societies, better safety standards and happier workers. It also is better for the consciousness of our society more generally. We don't want to be a world that profits at the expense of any marginalized factions, but a global community who, in the words of High School Musical, are all in this together. Paying a fair price for oil means that non-oil-exporting nations are better off in that respect as well.

The resolution is affirmed.

Return To Top | Posted:

2015-01-12 22:25:24

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deleted user (CON)

“OPEC exists to ensure fair trade.”

All trade is fair

When two or parties voluntarily trade it is because both parties believe the trade is beneficial to them, so since both parties are better off, that means the trade is fair. This makes the “need to ensure fair trade” obsolete. This alone debunks my opponent’s main argument.

OPEC currently overproduces oil

In November of 2014 OPEC caused a global oversupply of oil. [1] Oversupplying oil is wasteful because the resources used to produce that extra oil could have been used more productively. Pro argues that OPEC is needed to increase the supply of oil but that otherwise wouldn’t happen, but the argument is bad because OPEC is oversupplying oil.

Note: this debate is about OPEC's benefit to modern society, not society of the past; so what happened back 70's does not necessarily reflect the benefits of modern society.

Conclusion

OPEC is unnecessary and is making things worse by oversupplying oil.

Source

[1] http://en.wikipedia.org/wiki/OPEC

Return To Top | Posted:

2015-01-15 16:04:22

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admin (PRO)
I thank my opponent for his interesting argument.

My opponent's key claim is that all trade is fair. The natural extension of this must be that all prices are also fair, since the price (monetary or otherwise) is integral to the concept of exchange, which in turn is the key thing distinguishing trade from charity. After all, in con's logic, if the price were not fair, then at least one party would not generally believe the trade is beneficial to them (unless they've been duped or something, and I'm guessing my opponent wouldn't support that either). Now it so happens that according to economics, prices are set by two factors, known as demand and supply. A fair price means that demand and supply have intersected at a level that accurately reflects the value of the product to people (or in other words, how much they'd be willing to give up). If price is fair, then, it must mean that both demand and supply are also fair. On the one hand, con asserts that the supply is too high (in other words, it would be more beneficial for suppliers to use their resources not supplying the petroleum). This is simply incompatible with the idea that the price is not too low.

While my opponent ponders how his case doesn't contradict either itself or the most basic known principles of economics, I'll explain why both positions are wrong.

Trade is not fair

Note first of all that my opponent agreed OPEC ensures fair trade. It's good to have some common ground in this debate.

The world - and especially life generally - happens to be a very unfair place. There are winners, and there are losers. Often we see that losers were really deserving, while winners are often less than deserving. Just as life is often not far, so too is it with trade.

People generally take jobs even when the amount of money offered in unlivable, or consigns them to poverty, because the alternative (no job, and no income) means starvation and death. This is particularly the case in countries where jobs are scarce, and poverty is rife - both reduce the power of employees relative to the hiring power of employers. When they do find employment, these conditions also make them relatively replaceable. As such, even though there's a contract offer accepted by both sides, the terms of the bargaining for one side might be a matter of life and death, while the other side doesn't care and just wants the work done as cheaply as possible. The more impoverished a country, the more likely this is to arise.

When you have countries where over 90% of their wealth comes from oil, you can imagine their situation as being inherently somewhat similar. They sell oil because the alternative is an income over 90% lower, which would mean the complete devastation of that country. National-scale exploitation of natural resources can and does happen. It isn't as though third world countries are low on natural resources - even Somalia has tons of uranium etc - the problem is in being able to sell it, without being ripped off about it. Generally the wealth tends to just be extracted out of the country, but the country is not actually any better off - it is simply being saved from collapse, or at least the collapse is postponed until the resources run out.

As some nations thus have greater bargaining power in trade negotiations, they can negotiate more favorable terms of trade. I'm going to call this "unfair trade," because it benefits the one side over the other. Unfair trade means that the distribution of value is not fairly proportionally assigned to both sides. A classic example would be Bangladesh, a country with workers whom first world countries employ due to low wages, which is because they are all so desperate for work. When you're suffering, starving, diseases and dying, any sort of lifeline will do. The fact is that oil countries were once in a similar predicament, as I pointed out last round - low returns, high poverty, unfair trade.

Similar conditions for workers also existed during the industrial revolution. The solution humanity came up with was called unions. A union was (and still is) when a group of workers band together to collectively increase their power over their employers, since a mass strike of workers is more harmful than a quitting or dismissal of a single worker. Fair trade organizations fulfill much the same purpose as unions on a grander scale - they empower industries or countries to be able to sell their goods at better prices than what they would be able to negotiate on their own.

I bought up heaps of substantial examples of the benefits that this brings in the previous rounds, and additional information about how OPEC's formation revolutionized oil production. My opponent's short assertion to the country, to my mind, does little to "dunk my main argument" when compared to the facts of my case.

Oil Overproduction

So let's first of all consider what this actually means. I told you earlier that oil is demand inelastic - if too much is produced it is still purchased, just put into reserves or they fire up the oil power plants a little more or something else creative like that. What changes as a result of overproduction is not the demand but the supply of oil, creating an increase in quantity (more made = more sold) along with a reduction in price (more available = cheaper). Here's a diagram from my economics 101 class:

This has a number of significant impacts, notably:

petrol, and all goods/services that depend on petroleum, have a more steady supply and are cheaper
the producers of petrol (OPEC) earn less

In other words, if OPEC is oversupplying petrol, that means they are failing to protect their own economies but instead are propping up the economies of the rest of the world for whatever reason. I noted in my last round why Saudi Arabia has been a vocal advocate of that since the 1980s and has been oversupplying petroleum for a long time now. This is not to say that OPEC is bad for modern society, it simply means that OPEC in that particular month benefited one segment of modern society more than some other segment.

Regarding the idea that this is wasteful, wastefulness has nothing to do with how a resource is extracted but with how a resource is used. There's nothing wasteful about turning on the pumps for slightly longer each month. If my opponent's argument is that the opportunity cost is extracting some other resource that might be able to be sold at a higher price, that's ridiculous at the point where countries are dependent on oil for such a massive proportion of their income. Oil remains one of the most high value commodities in the world today, in spite of the falling prices. The long term trend has still been not overproduction, but underproduction relative to the value that oil brings consumers. This is demonstrated by the rising prices shown in the following graph:

The green line is the one you'll want to be looking at, because that's taking out all other kinds of inflation and just looking at the inflation of oil prices. A reduction on this is hardly problematic. Maybe Dubai will have to make do with one or two fewer new lavish hotels next year, but what they've achieved already more than makes up for it.

This OPEC achievement is made even more amazing by the fact that most of the world's oil isn't even produced by OPEC countries, OPEC countries just tend to be the largest net exporters. As Forbes magazine recently had as their headline, "the Saudis are partying [today] like it's 1981".

As an aside, the reason why historical information is still relevant is because modern society came from somewhere. If we undo what OPEC has done for the modern world, and imagine a world without OPEC, it becomes easy to see that life under a non-OPEC scenario would be significantly worse. As time goes on and into the future, OPEC will no doubt continue to do great things for the world also.

The resolution is affirmed.

Return To Top | Posted:

2015-01-17 20:04:27

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deleted user (CON)

My opponent argues, “If price is fair, then, it must mean that both demand and supply are also fair.” Supply and demand are not fair because the supply is being artificially increased by OPEC which would not have happened under the free market (because it has a financial incentive to not overproduce), which is why the price is in fact too low.

My opponent tried to disprove my all trade is fair argument by describing a scenario where people have no other job opportunities and would starve to death if they don’t accept any low paying job. But even in this extreme scenario, one side gets to live when they would otherwise starve, while the other side only gets cheap labor. Some might say the person who gets to live because of his low paying job is getting the better deal. People who create jobs for those who are the most desperate for work are heroes, even if the wages are less than what some would like. Since in this absolutely most extreme example, both sides are getting a good deal and you can’t objectively say one side is getting a better deal than the other. So if you judge fairness by relative value gain of both parties, you can’t conclude one side is getting a better deal since value is subjective, so no trades can objectively be considered unfair, and since there is no such thing as an unfair trade, the main goal of OPEC is obsolete.

My opponent argues that unions are an example of collective bargaining to allow fair trade. Let’s take teacher unions as an example. The bad teachers can’t get fired and the good teachers can’t get rewarded, and this decreases the quality of teachers, which is a very bad thing. This applies to other unions too; when all workers must get paid the same, there is no incentive for them to work better. Therefor unions and other forms of collective bargaining are harmful.

My opponent’s argument that overproduction is not wasteful because oil is so valuable is fallacious. My opponent admitted even the countries that most rely on oil only get 90% of their wealth from oil. The opportunity cost of that 90% is taking away from that 10% other category.

My opponent argues “In other words, if OPEC is oversupplying petrol, that means they are failing to protect their own economies but instead are propping up the economies of the rest of the world for whatever reason.”

This is the problem, OPEC can either help oil producing countries by raising the price of oil, or help everyone else by overproducing which lowers the price of oil, but by helping one you hurt the other. It is impossible for OPEC to be a net benefit to society because it can only help one side at the cost of the other, which is not a net benefit.

Conclusion: OPEC is NOT a net benefit to modern society.

Return To Top | Posted:

2015-01-20 17:03:32

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admin (PRO)
Thanks to my opponent for continuing his case.

I'd like to begin with a correction. Quantity does NOT change when supply changes where demand is inelastic. This does not impact on my case at all since my point regarded the change in price, but I'll demonstrate this anyway for the sake of being honest about mistakes in my case. I'd accidentally described perfectly elastic supply as opposed to inelastic supply, while my graph showed a "classical" demand and supply curve, in essence labeling the oil market as every sort of market at the same time. I take full responsibility for that and to be honest had to rush a lot of my previous round. So if anyone was confused, here is the accurate version which I have now triple-checked is right:

As you can see, with a change in supply (labelled here as T) the price changes but not the quantity. Additional oil, rather than being consumed immediately, is simply not sold until later. I apologize deeply to anyone who was confused by me.

All trade isn't fair

My opponent has now said that neither price, supply or demand in the market for oil are not fair. With this in mind, he has never explained how trade in the market for oil can possibly be fair. It simply makes no sense to argue every bit of trade is inherently fair.

In R2, my opponent shifted this to free trade being fair. The irony is that he is confused on the economic impact of a cartel, which exists to limit output (artificially lower supply) to fetch a higher price. The financial incentive (though ruinous in the long term) in game theory is to cheat the cartel and flood the market with your product (as Saudi once did in the 80s), a sort of artificial boost to market share. On the other hand, if everyone cheats, then everyone is worse off because the price goes down again. If OPEC is oversupplying oil and price is too low, then consider how bad it would be if there was no OPEC - the impact of which would be increased supply and an even lower price! It's always strange to me how so-called "free market" activists hate companies or countries making deals with each other to increase their profits, yet free markets are all about free choice. If free choice is to be maximized in modern society, it's a benefit we can both agree on for these countries to have had the right to decide to boost their profits.

The attack on free choice (but love of free markets) by my opponent continued with his attack on teacher's unions, basically analogizing that some countries deserve to be paid more for their oil. Yes, and with OPEC around, everybody gets paid more. That's the point of OPEC. Earnings will always be a fraction of total supply but that's fine, because the high income that has been earned through OPEC has offset that. We see this in the real difference oil wealth has made to oil rich countries in the last 50 years. It's not like oil just magically appeared there or became useful - oil has literally made those countries rich. Incentives for them to work better can come in non-monetary forms as well, and I've given several examples of this - for example, OPEC's policy requirements on members.

Finally, let's revisit my analysis from the previous round disproving this contention. First of all, it's not an extreme scenario. It happens every day, on every corner of the globe, to lots of people. Almost everybody would like a higher paying job, but employers can get away with paying employees less everywhere as well, because they have the power. Although both sides have some value gain under that scenario, the value gained is not necessarily equal to the value given up. I explained this in the last round. Sometimes people need to give up a lot of value to survive, but through organizations like OPEC, they are able to get a more equitable price for their oil (or other goods/services). The apportionment of value to both sides is what makes it a trade as opposed to a charity - but to be fair trade it must be equal value to both sides.

The main goal of OPEC isn't to get any return, it is to maximize return. Returns are not maximized for OPEC nations, without OPEC, and we can see that with historical precedent.

Overproduction

I said up to 95% of income of many OPEC nations was from oil. This does not necessarily mean 95% of output - it merely means that oil is a very high value good. The opportunity cost in not producing oil might be scrapping oil fields and manipulating the markets to force certain other industries to arise, sure (not sure how efficient this would be, or how this would be equitable, but it's certainly possible). Maybe there's something to be said for a diversified market. But the problem is that your income decreases when you do that - sell less high value goods, get less money. It's a very simple relationship.

OPEC sets maximum production targets. It does not set minimums. Countries can choose to limit their output even beyond the OPEC limits at any time, and for any reason. If a country earnestly believes they are overproducing, they have it in their power to simply export less, and OPEC will be ok with that - because it would be a dumb decision. It would mean you export less high-value goods, incur tons of switching costs, and then at the end have no additional money from the oil itself (since other nations would be happy to supply more in response, increasing their profits in so doing). So adding to the little 5-10% of the exports of, say, Venezuela that is not oil, would lead to a reduction in wealth for that country many times greater than the percentage quantity of oil not exported. It's in the financial interests of the countries to supply more.

If ANYBODY has any incentive to limit supply, it's OPEC. OPEC is the ONE agency that has a huge vested interest in keeping supply low to keep the price artificially high for as long as possible, because that's literally their goal today and the reason why they were founded. So if my opponent's problem is oversupply, then he should be praising OPEC for solving this problem, and indeed arguing that OPEC should be strengthened to lower supply further.

Finally, remember that I dealt with the ludicrous point that overproducing helps everyone else in round one. Literally half of my analysis (I labelled it "price and supply") disproved this point. Rather than rebut me, con has decided to come up with this assertion right at the end with no analysis behind it - not even a superficial reason to accept his statement.

Conclusion

My opponent's philosophy is that OPEC can't help both net producers and net consumers of oil. He thinks it's a zero sum game - the benefits of the one will never outweigh the costs to the others. But this is not OPEC's dichotomy.

Let's remember whom OPEC has actually cost something. It has cost the big oil companies big time. It has cost certain special interest groups. Maybe one could argue that it cost oil consumers during the oil shocks of the 70s. But none of these have been defended by my opponent. These are the only things that have actually been changed by the existence of OPEC, as opposed to the individual economic policies of certain OPEC member states which for some reason con has decided to attack instead (id est Saudi Arabia).

Now let us consider the gains OPEC has made. These have never been refuted by my opponent. There can be no doubt that where once oil-rich nations lacked money, now they do not. This is economic fact. Social conditions have improved vastly as a result in these countries. And for the rest of the world, we benefit by association. When others make progress, that can help us to make progress too.

There are costs and benefits to every organization. OPEC just so happens to be one where there's lots of good things, and almost no harms. Producers and consumers have both, in unique ways, benefited from the existence of OPEC. And that's great for modern society.

The resolution is affirmed.

Return To Top | Posted:

2015-01-22 18:49:06

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deleted user (CON)
Round Forfeited

Return To Top | Posted:

2015-01-25 18:50:01

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