Securitisation need not be inherently more risky than other forms of raising finance

By Mario Osava

Just about everyone is complaining about the high price of oil, but it does not even reflect the environmental costs and is still insufficient to promote the changes needed to ensure a less catastrophic future for humanity, experts warn.

The “brutal and rapid” rise in the price of oil over the last few years has not generated changes that would bring about the indispensable regulation of the global economic system, but has merely given rise to “adaptations” that tend to maintain the status quo, according to Gilberto Dupas, head of international studies at the University of São Paulo.

Demand for oil will continue to grow because of “the spread of Western patterns of consumption, especially in China and India,” and the declining price of cars, since in the automobile industry, “only global companies that produce them for the price of 2,500 dollars will survive, accentuating the tendency to use private transport,” he said.

Besides the soaring global levels of demand for food and energy, the logic of profits “constantly promotes more creative destruction,” with appliances and other goods turning into obsolete junk “in ever-shorter technological cycles” that require continuous upgrading and replacement, and thus lead to the consumption of increasing amounts of energy and raw materials, he said.

The “only symptom” of the impact of record high oil prices is the widespread inflation, which is especially marked in the case of food, reflecting “the systemic dependence on oil,” without the crisis being sufficiently severe to prompt an in-depth questioning of the system itself, said Dupas, who is also president of the Institute for International Economic Studies (IEEI).

The system has a tremendous ability to withstand pressure and changes, said the author of the book “O mito do progresso” (The Myth of Progress), which analyses who determines the directions taken by the system and its environmental and social costs.

He questioned the global economic system’s capacity to recognise the crisis and regulate itself in the face of the worsening situation, which is aggravated by global warming.

The climbing prices of oil, copper and steel form part of a new phenomenon that is likely to be long-lived, said Fernando Cardim de Carvalho, a professor at the Federal University of Rio de Janeiro.

In the past, the industrialisation process of countries experiencing fast economic growth, like the Asian tigers (Hong Kong, Singapore, South Korea, and Taiwan) was based on cheap labour power “which ran out” when the country reached a certain level of development. The local populations experienced a gradual rise in living standards, which brought stability to the process.

But that isn’t what is happening today, Cardim said.

China, with its more than 1.3 billion people, represents “a structural force, growing demand without any decline in sight,” said the economist, who added that there are always “new Chinas to repeat or maintain the momentum of the process, which are both modern and underdeveloped at the same time.” China will remain competitive in the textile    industry, which in the past was a sector that relocated to poorer countries with cheaper labour, he said.

With guaranteed growth of demand, the rise in oil prices should not be confused with speculative bubbles, which would burst as a result of an increase in interest rates, argued Cardim. But the high prices could lead to recession in the short-term, encouraging the replacement of fossil fuels with other sources of energy in the long run, he predicted.

In fact, oil prices have gone up steadily since 2003, unlike the oil shocks of 1973 and 1979, when prices surged in a very short time, followed by a levelling off and even a downturn within less than a year.

With the high costs of transportation, energy and food, the world economy will tend to experience at least sectoral changes, favouring greater local processing of commodities.

Brazil is one of the countries that will benefit, due to its abundant commodities and energy sources, including recently discovered huge deep sea oil fields, which will soon turn it into an oil exporter, he said.

Africa also faces another major obstacle: Scarcity of iron ore, said Dupas.

In the short-term, the soaring oil prices will not modify the current system, but will lead to a global economic recession, said Cardim. And in the long-term, if prices remain high and global production of fossil fuels has indeed peaked, replacing them with other sources of energy will prompt “a new industrial revolution,” he added.

- IPS