A Journal for Western Man

 

 

 

The False Virtues of Energy Independence

Xavier Méra

Issue LXIV- June 25, 2006

 

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"The State must ensure the energy independence of the nation". This is one of the most usual justifications of "economic patriotism" in the energy field. It was recently used to support the French government’s decision to merge GDF and Suez, blocking a possible takeover by the Italian Enel on the latter. "Economic patriotism", the defense of "national champions" and of "strategic sectors," are the current talk of the day. That did not fail to disturb the summit of EU Heads of State which was held in Brussels on 23 and 24 March, as they were supposed to talk about a common energy policy. However, a policy of energy independence, either national or European, by no means guarantees the best conditions of provision and harms citizens’ purchasing power.

Idealistic notions proclaiming the country to be in danger are not a good substitute for an authentic analysis of the issues. "The national interest is at stake", they tell us and "All the great world States, beginning with the United States, but also China, India, and Japan support their companies from inside the country". This position is quite bizarre. How does the economic patriotism of other States demonstrate that it is an advisable policy? A "national" fervor consisting of reproducing what foreigners do, because it is what they do, appears somewhat paradoxical to us in any case. Moreover, if foreigners show such an amount of wisdom, why not entrust our industries to them?

No, it is necessary to return to reason. What is energy independence? A country is said to be dependent when it is a net importer of energy. A country that produces all the energy that it consumes would be purely independent. Why is independence not already standard practice? Because "dependence" has considerable advantages. Taking into account the distribution of energy layers on the earth’s surface and differences in productivity of the factors of production, the specialization of certain regions in energy production and international trade allows the people involved to be more prosperous than if they chose isolation. The "energy dependents" obtain a better energy deal, and energy producers profit from what they obtain in exchange. In other words, the international division of labor serves some purpose, including when it is a matter of energy.

The most obvious way to bring about energy independence would be for the government to block any energy imports. Admittedly, foreigners could not cut the gas any more, but it is because the national government would already have cut it to a large extent. It is true that by destroying international competition, a new national production would become profitable and partially fill the vacuum created, but independence would imply for millions of consumers less provision and higher prices. It is the consequence of the relative inferiority of national production. This incapacity to provide consumers with lower prices is precisely the reason why these new producers could not sustain foreign competition.

The government could -- it is true compensate -- by pushing production beyond its profitable threshold through subsidies, thus making prices lower. However, such an attempt to revive the former relative prosperity would be largely illusory. Indeed, whatever would not be paid directly in the purchase of energy would be paid through taxation and higher prices for goods whose production would be reduced following the displacement of the factors of production towards the energy sector. Behind the "patriotic" fervor, the ideal of energy independence promises above all a generalized impoverishment.

Of course, to impede a takeover of Enel under Suez by creating a "national champion" does not take us so far, but it is a step in this direction. With a giant dependent on political power, the possibilities of approaching the goal of energy independence are larger, as its supporters point out. It would today be politically impracticable to prohibit imports, but government supervision over national industry via public shareholding and subsidies creates a distortion of competition with respect to foreign producers, making it possible to increase energy independence... to the detriment of consumers.

Xavier Méra is an associate researcher with the Molinari Economic Institute.

This TRA feature has been edited in accordance with TRA’s Statement of Policy.

Click here to return to TRA's Issue LXIV Index.

Learn about Mr. Stolyarov's novel, Eden against the Colossus, here.

Read Mr. Stolyarov's new comprehensive treatise, A Rational Cosmology, explicating such terms as the universe, matter, space, time, sound, light, life, consciousness, and volition, at http://www.geocities.com/rational_argumentator/rc.html.

Visit PanAsianBiz for interesting perspectives on international business and current events in Russia and Asia. Dr. Bill Belew's blog especially addresses Asian countries' contributions to the emerging global economy. Dr. Belew also writes a blog on business in China - ZhongHuaRising - business in Japan - RisingSunofNihon - and business education - TheBizofKnowledge.

 

 

 

 

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