Socialism in Action

By Kevin D. Williamson

Friday, July 09, 2021

 

If you happened to be sailing on the Gulf of Mexico earlier this week, you could have witnessed a dramatic example of genuine socialism in action — and it looked a bit like Sauron.

 

The “eye of fire” — a conflagration on the surface of the water of the Gulf of Mexico — was the work of Pemex, the state-owned oil company operated by the Mexican government. It was caused by a massive gas leak that apparently was set afire by lightning.

 

The Gulf of Mexico hasn’t seen that much socialism in action since the Mariel boatlift.

 

When our progressive friends talk about “socialism,” they inevitably point to some rich capitalist European country with a larger welfare state and higher taxes than ours, but actual socialism — central planning, government control of the commanding heights of the economy, state-run enterprises — looks a lot more like Pemex.

 

National oil companies are the living dinosaurs of socialism. Even as the purportedly socialist Nordic countries spent decades privatizing everything from state-owned banks in Norway to the postal service in Sweden, state-owned oil companies still soldiered on. In many cases (as in Norway’s Equinor, formerly Statoil) even those have been partially privatized and are operated as shareholder-owned firms in which there are private investors in addition to the state. As a rule of thumb, the more completely an oil company is controlled by the state — the more socialistic it is — the less responsibly it behaves on every criterion from the treatment of workers to corruption to environmental impact.

 

Pemex offers us its most sober assurance that there was no environmental damage associated with the fire that had the Gulf of Mexico doing its best impersonation of the Cuyahoga River in 1969. But only a fool takes such an organization at its word.

 

Pemex is a state-run enterprise that was created the way socialists prefer: by nationalizing the assets of privately owned oil companies in Mexico and reorganizing that expropriated wealth as a state-owned monopoly. It has one of the worst environmental records of any company in the world, and its executives consistently lie about, minimize, and cover up its misdeeds.

 

Billions of dollars of Pemex oil goes missing every year as part of a criminal enterprise organized, if we are to believe the Mexican government, by Pemex executives, including its former head of security. Because socialism always begins with a man in a workshirt and ends with a guy dressed up as Cap’n Crunch, Pemex’s corrupt head of security was a brigadier general — which makes prosecuting him complicated.

 

State-run enterprises come with a couple of obvious problems. One is the lack of an adversarial relationship with regulators. If the state is the oil company and the oil company’s regulator, then you usually (but not always) end up with ineffective regulation, because there is no other party to bring the hammer down on. In a parallel case, Petroecuador is responsible for hundreds of oil spills in Ecuador and vast amounts of pollution — including, very likely, the pollution that money-grubbing celebrity activists tried to pin on Chevron with the fraudulent lawsuit brought by Barack Obama’s basketball buddy Stephen Donziger, currently under house arrest in Manhattan. There are rivalries and factions within governments, to be sure, but government regulators do not have a great record when it comes to the oversight of government enterprises — especially when they bring in billions of dollars annually.

 

Which brings us to a second problem: Just because a state enterprise generates billions of dollars doesn’t mean that it is well-run — or run in the interest of the people who, in theory, own it through their government. Mexico exports an enormous amount of crude oil, which provides the government with much-needed revenue and cherished opportunities for gainful corruption. But Mexico also imports gasoline and other refined petroleum products, because it has not invested sufficiently in refining capacity to meet its needs. Naturally, Pemex also dominates Mexico’s fuel-import industry, and the Mexican government restricts non-Pemex importers in a way that entrenches the state enterprise’s position. The result is that Mexico is a poor country relative to the United States, but its people pay, on average, about 25 percent more per gallon for gasoline than Americans do.

 

People who favor a socialized model of such enterprises as energy and health care almost always make the same mistake: They implicitly assume that by removing profit from the equation, we can make things both more efficient and more fair. The problem with that line of thinking is that people who go to work in government, including in state enterprises, are not magically divested of their self-interest. This is a variation on what is known as the agent–principal problem: When you hire someone to do a job for you, the person you hire has economic incentives that are different from — and sometimes at odds with — yours. Individual administrators have their own interests, agencies and bureaucracies have their own interests, employees have their own interests, etc.

 

Public-school teachers may play the martyr, but they are very, very interested in how much they get paid, their pensions, their benefits, their work conditions, etc. Student performance? Sure, that’s great, if it happens — but what teachers will march for is getting paid. That is why their school-reform agenda is always the same: “Pay up, sucker.” If we want to know whether we will get better results if we pay more, then they will do their best to stop us from measuring educational outcomes or imposing any kind of accountability. That’s how Milwaukee ends up paying bureaucrats a quarter-million dollars a year plus generous benefits to oversee some of the worst education that kind of money can buy.

 

The same basic story plays out everywhere from your local police department to the IRS. That sometimes produces corrupt results, but the non-corrupt results — inefficiency, ineffectiveness, distortion of institutional missions — often are worse in the big picture. The big problem with our schools, for example, isn’t that some teachers fudge their hours a little bit — the big problem is that they fail to educate students.

 

People will fight like all hell over one of those six-figure public-school jobs — now, imagine how much more there is to fight over in an $80-billion-a-year state enterprise. Not that you have to imagine: Look at how so-called green-energy entrepreneurs fight for subsidies and handouts. Look how eager Democratic politicians are to pay them — there’s a reason for that, and it isn’t the goodness of their hearts: Al Gore went from failed presidential candidate to a guy with $200 million in the bank in just a few years. Alexandria Ocasio-Cortez may not be the most well-honed cutting instrument in the great congressional shed, but she is smart enough to know that she’s going to need a second act one of these days.

 

These problems exist in the private sector, too. Some of them can be overcome, or at least greatly mitigated, through good corporate governance and robustly competitive markets — and when those are insufficient, there is regulation and other kinds of intervention. But you don’t get robust competition or effective regulation with state enterprises, and you rarely get excellent corporate governance in them. As Willi Schlamm famously put it: The problem with capitalism is capitalists, but the problem with socialism is socialism.