Global Energy Game

I [Music] these tankers carry imported oil without it our economy would collapse I'm Adam Smith my books the money game and super money explain serious money to Millions but the biggest money story today is the world's oil Bill and what it's costing you really we've set up a tableau here an international oil game using actors to make some complicated economic information more understandable we're doing this to show how quadrupling the price of oil made the countries of the world more dependent on each other and how each player's adjustment affects all the others while the actors simulate the motives and strategies of each country the real outcome of the oil game affect all of our Lives the object of the game is for each player to buy and sell enough Goods so that his economy continues to grow at a healthy rate growth means more jobs for his people more money and a higher standard of living in order for their countries to grow the players need oil how many I will need six more please the catch is that none of the players except one has enough oil to meet his country's needs so they're all dependent on that player he sets the price and he also controls the supply for the other players the problem is how to pay for the oil in the game as in the real world the players have basically two options I need a loan of $50 million they can go to the bank and borrow money two from the less developed country or they can earn money by selling their exports to the other players I thank the gentleman from West Germany the black plus chips represent money earned from the sale of exports I would like six please the red minus chips represent debt they have incurred buying Imports ideally each player should earn enough money from his exports to pay for his Imports if he doesn't and he continues to go deeper into debt his economy suffers and people are thrown out of work it's a chain reaction think what would happen if you went into debt and were short of cash eventually you'd cut back your spending you'd repair your old car instead of buying a new one you might switch to Spaghetti instead of meat and your car dealer and your butcher would obviously do Less business those are the rules now let's meet some of the players let me see I'll need 20 more this time the American is the wealthiest player at the table we produced a record $2 trillion worth of goods last year and provided 90 million jobs for our workers I'd say that's doing pretty well [Music] well of course we did have to import a lot of oil in the process almost 50% of what we used last year and it was expensive but I think it was worth it how many and again the American player represents only 5% of the world's population yet he manages to consume about a third of the world's oil the other players warned him about too much of a good thing but up until now he hasn't listened the West German player has the third strongest economy in the game behind the US and Japan our oil consumption was about a billion barrels almost all of that imported we also want a high growth rate for our country and our people but we know too much growth too fast leads to inflation and we can't forget what happened after the first world war the memory of people using using money as wallpaper because inflation had made it worthless is still too Vivid the Japanese player also represents a strong economy but a vulnerable one nature gave Japan very few natural resources so we have always had to import most of our food and the raw materials we need for our Industries it is for that reason that our economy operates much like a giant Factory raw materials come in one end they are processed and then manufactured products are shipped out the other we have to export to pay for our Imports the less developed country our economy depends upon the strength of our workers who earn little money but work hard to produce the special crops we s to the rest of the world we are trying hard to develop our industry but at the moment we cannot sell enough exports to pay for the oil the food and the other Imports we need so we have to borrow from the banks finally the player from Saudi Arabia he sits in the game as a representative of OPEC the organization of petroleum exporting countries from many many years we have been dictated to by the major oil companies who kept the price of our oil low that has changed we are earning a lot more money today and we have many projects underway to build hospitals housing roads for example which will provide better living conditions for our people we know however that the oil won't last forever and frankly many people in my country feel we should be pumping less oil so that it lasts longer the Saudis weren't always so rich in 1957 the price of crude oil was only $28 a barrel in 1960 it dropped to A180 that drop provoked a response Iraq Iran Kuwait Saudi Arabia and Venezuela got together to form OPEC the idea was to have some bargaining strength with all the oil companies call it a union but a union of producers oil was overabundant in the 1960s and OPEC was dormant but in 1968 they declared their intention to control the oil business that was only rhetoric until 1969 when moamar Al Gaddafi seized power in [Music] Libya the following year he started nationalizing the oil companies and he raised the price of Libyan oil the word went out you can't push OPEC around the big shock came with the fourth Arab Israeli War in October 1973 10 days after the war started OPEC raised the price 70% to $512 a barrel and then 3 Days Later embargo OPEC shipments to the United States officially stopped OPEC power had arrived full force and to drive the point home OPEC raised the price from $512 a barrel to $11.65 a barrel with that oil price increase the OPEC nations touched off an economic shock felt round the world you must be reasonable how do you expect us to pay those prices too rare realize what such an increase could do to the world economy gentlemen you may now pay me four times as much for the oil worldwide inflation already spiraling up went through the roof unemployment rate soared to the highest level since the Great Depression while the oil importing nation suffered the OPEC nations found themselves on the receiving end of the largest redistribution of wealth in the history of the world from the pockets of industry and individual consumers worldwide the money flowed and OPEC coffers overflowed in 1976 the Saudis alone were earning just over $0000 million a day with that tremendous outpouring of wealth the nature of the game changed dramatically this is the way the table looked in 1973 the United States States in Saudi Arabia had more plus than minus chips in other words they had a surplus they exported more than they imported Japan and the less developed country on the other hand had more minus chips they both had deficits now look at the table in 1974 after the price increase Japan's deficit is 35 times larger the United States Surplus has been cut to onethird of what it was and the Saudi Surplus is more than 10 times what it was some 23 billion dollar by 1977 all the players had begun adjusting to the high price of oil and had therefore improved their accounts except one their adjustment wasn't easy a lot of people lost jobs but they knew it had to be done keep this in mind the world had inflation before for 1973 and it had unemployment OPEC didn't invent those problems but it intensified gentlemen higher oil prices are going to force your import bills up and you're all going to be tempted to cut back on your Imports to save money some of you may also want to increase your exports so that you can have more money to pay for the oil and let me warn you though if that happens you're only going to end up hurting each other that was the gist of the message the international monetary fund gave world leaders back in 1974 problem is for everyone to borrow before 1973 this was a relatively friendly game now that the oil price increase has saddled everybody with a lot more debt and unemployment the game has become a much more serious matter the volume of World Trade has dropped and in certain markets competition has increased that's the big picture the buzzword the economist use is macroeconomic to understand how Japan's adjustment to the price increase affected us let's look at one small corner of the picture the steel industry like the rest of Japanese industry responded to slow economic recovery at home by pushing exports the way they did it and the way everyone else in the game did it was by cutting prices critics say that the Japanese wanted to keep their workers employed so they sold steel at a loss they have found that it's easier and cheaper for them to produce excess quantities of Steel and dump them on the world markets at less than the cost of production they feel that they their country their economy is better off doing that than it would be in cutting back on production and paying the unemployed worker the cost of his maintenance uh during a period of unemployment the steel industry the Japanese government denies the charges 20 years ago they were uh they were assisted uh by the government through the some uh Financial measures and the taxation concessions Etc but not so much heavily as imagined by some foreign people now they are not subsidized at all Japanese steel mills like this one near Tokyo are among the most modern and efficient in the world the steel comes in all shapes and sizes but it looks a lot different depending on your perspective to the American Consumer it's Quality Steel at a low price to the international Economist looking at the larger picture it's an export helping Japan balance the high cost of its oil but to an American Steel work it's a threat to his job at Armco Steel in Houston Texas Foreign imports steel and Automobiles have triggered real hostility George Hansen is president of Armco Steel's Western Division we have a sign up in front of this plant out in the front gate that says buy a foreign car and put 10 Americans out of work I firmly believe in that sign that's exactly what happened at this plant here people bought foreign steel and put Steel Workers out of work sometimes we tell our workers that we can't control where they buy their cars or from whom they buy them but if they buy a foreign automobile and park it close to that furnace you see back there we're allowable to put it in the furnace and melt it down be careful J the Jones family of Houston Texas doesn't talk about the balance of payments or the effects of oil prices on the world economy but those issues have a large impact on their lives Mark Jones was laid off by Armco for 17 months and um the the reason they give us was that foreign steel companies had been uh selling their Steel in the United States at a lower price than American steel companies so I was never really conscious of it you know of being of of the impact that foreign companies make on the United States economy until this time as the high price of oil pressures Japan and other countries to sell more cars and steel and television sets American companies making the same things are having a tough time of it so they're asking the government for tariffs quotas something to protect them it's a natural reaction but many people in Washington are concerned that if we put up trade barriers other countries will do the same and that can lead to trade War to understand how such conflicts get started let's take a look at the controversy over foreign competition within the Fastener industry nuts and bolts that [Music] is these exercis Es are part of the regular morning routine at aada bolt company in kaiki [Applause] [Music] Japan the song they sing reaffirms their dedication to the company and to a brighter future for Japan with them and some 65,000 other Japanese workers that means harder work increased sales and an expanding share of the world Fastener Market John lurman is Chairman of rbnw one of the country's largest manufacturers of nuts and bolts if you had been in this plant 5 years ago you would have seen practically every piece of Machinery operating and a lot more activity in the plan itself itself so much of the business of our industry has been lost to Imports coming into this country at very low prices primarily subsidized by various governments and accordingly during this period our production has dropped almost in half at this plant and our employment has dropped from almost 800 down to 400 employees recently the nuts and bolts industry applied to the International Trade Commission for protection from what they considered unfair competition with that petition the Fastener industry joined a growing number of industries that have asked the government for protection from trade competition steel shoes CB radios color television we no longer look at the the word protectionism as a bad word we are looking for protection we're sort of standing back Simon pure and say well we're for free trade we can't be for free trade anymore we've got to be for fair trade more and more people in organized labor and in Congress are talking protectionism do you see any danger in protectionism leading to a world depression yes I can see that we could get ourselves into u a situation where we damage all the economies of the world or most of the economies of the world through wreting higher and higher tariff barriers less developed countries were hit especially hard by the oil price rise in 1973 as you will see their reaction affected us you must be reasonable how do you expect us to pay those prices the people of Brazil like us were enjoying a gradual Improvement in the quality of their lives in the early 70s the economy was growing life was getting better then came the oil price rise primary effect I think was one of immediate shock to the economy Brazil has been traditionally an importer of oil net importer of oil oil importing close to uh 80% in 1973 of its oil needs and uh used to a continued cheap source of energy that cheap source of energy oil was now four times as expensive and Brazil's economic progress was in serious Peril but the government imposed strict conservation measures that steadily reduced the country's import Bill fuel prices were allowed to go up to almost $2 a gallon automobiles were even developed to run on alcohol made from Surplus sugar cane gas is not sold on weekends causing long lines at closing time most of these cars are made in Brazil similar American models sell here for about $20,000 Brazil has levied taxes of up to 300% for non-essential Imports if Brazil had a popular democracy like ours you can bet these tough decrees would never have been issued but Brazil did even more they adopted a financial strategy that was a colossal gamble over the last four years Brazil's leaders have gone abroad to borrow $30 billion much of it from large commercial Banks first thing we do is we go out and make loans around the world that meet our credit standards then depending on what loans have been made this creates a demand for funds and then we go out and bid in the financial markets that means that City Bank has to go out and find the money to make the loans canel it is probably something like Arab Money somebody the people in this room get some of that money from other banks around the world ironically a lot of the money comes from certain OPEC countries like Kuwait and Saudi Arabia okay okay okay they have more money than they know how to spend so they deposit it in Banks which then lend it to countries like Brazil and turkey driving around sou Paulo Brazil's industrial center you quickly notice a lot of foreign companies many of them American to sell in Brazil you have to produce in Brazil even before the oil price this was a policy for cutting Imports after the price rise it became more than a valuable policy this was the stage at which you had to control your Imports and the way that you control your Imports is either you simply cut back or you get companies both local and foreign to manufacture the same product locally for Brazil employs uh 20,000 people in these workers are paid about one quarter what the same work workers in the United States receive and remember some of these are jobs that once belonged to Americans we get H incentives from the government to export the government is concerned about their balance of trade and we are certainly trying to help Ford Brazil is helping and making a lot of money in the process these brazilian-made Ford tractors compete around the world with americanmade tractors the highway to the port of Santos carries convoys of heavy trucks packed with Goods to be shipped all over the world shoes textiles and other manufactured exports have more than doubled since 1973 and more traditional exports like soybeans sugar and of course coffee are growing coffee has always been the backbone of Brazil's trade as with other products in Brazil the best is skimmed off for export and the remainder left for the Brazilians Brazil is only one of many developing countries that have stepped up their exports to pay their oil Bill a larger share of the export market for them means a smaller share for us the American player has continued importing more and more foreign oil only now his gluttony is beginning to hurt that oil has thrown him deeply into debt and made him increasingly dependent on OPEC the past five years haven't been easy on the other players either but they have faced up to the oil problem and now everybody is waiting to see if the American will do the same in 1977 the United States total import bill was a staggering 26.7 billion more than its exports a new world record the whole trade deficit problem is really two issues too much expensive oil and other Imports coming in but also not enough exports going out the German and the Japanese economies are large and strong when they grow strongly in their own country then they increase their demand for foreign Goods Goods as they increase their demand for foreign Goods not only we can sell them more but also other countries can sell them more and some of those other countries are our customers which means that they have money again to buy from us the presentation of Mr yiba uh fell uh considerably short after a little diplomatic arm twisting American Trade negotiators have now convinc the Japanese to buy more American exports trade deficits often occur when one country grows faster and therefore Imports more than the countries it trades with but the problem with our deficit is that we are buying so much more that foreigners and foreign money markets are receiving more dollars than they know what to do with and that causes the value of the dollar to drop the dollar has dropped dramatically and we seem to have chronic unemployment and inflation here at at home how does the OPEC price rise fit into this picture the more money we have to pay the more pressure and therefore the more minus numbers we have on our trade balance and as the trade balance is very much in a minus position uh so there is a psychological impact amongst uh exchange Traders which causes the price of the dollar to weaken are you one more time make sure it has many apologies that impact was obvious at Harris Bank in London we were there filming when the announcement of a record us trade deficit for February came over the wire tell them markets are very very thin uh trade figures just came out $45 billion doll deficit record dollars is just offered just dollars just offered in the market some dollars offered everywhere change that Mar 2535 yeah do you have a y price in one day the value of the dollar dropped dramatically against the Japanese Yen oh yeah scenes similar to this one with International Traders buying and selling currencies take place all over the world in London and New York it's all part of an international Confidence Game when news breaks that adversely affects the United States World confidence is shaken and Traders rush to sell dollars five I'm s okay I do seven Administration ConEd that the reason that the was of now when the dollar Falls in value is there people begin to question the whole stability of the International Financial system and that I think is an international problem it's not just an American problem it's Jeffrey Bell is a director of schroers an international Merchant Bank and the worrying thing of course is that the casualty of of the system as the dollar is weak could well be slower World growth the growth of world protectionism which affects everybody here at home the sinking dollar does some good things and some bad on the positive side it makes American grain and other exports cheaper abroad so we should sell more and thus reduce our deficit but that takes time on the negative side the cost of imports go up that means you're going to have more inflation it also means that American companies that compete with Imports are free to raise their prices to find out what effect a major price increase say a doubling of prices could have on you we travel to data resources Incorporated in Lexington Massachusetts so we can ask the machines here drri is in the business of making economic projections Alan siai as vice president of financial products now what would happen if uh the OPEC ministers got together and announced that the price of oil would be doubled let's say what would happen to jobs if the OPEC prices double the number of jobs lost would be a million and 3/4 this is in million so that means 1,700,000 people who are now working would lose their jobs that's right and even worse under this scenario they would never get those jobs back the pie in short will no longer be expanding it will be rigid or Contracting and I think that that could lead to very very serious consequences from the standpoint of the aspirations of the lower 20% of the population these Grim predictions are all speculation but they are important because that's what could happen if the United States doesn't reduce its dependence on OPEC oil one step in that direction is the construction of more energy efficient buildings increased domestic production and the development of alternate energy forms will also help but not soon enough to avoid the crisis some people are predicting for the mid 1980s the immediate problem and the major problem facing Congress today is how to get you and me to conserve we will all agree that is to say economists will all agree that the thing that we need is conservation we'll all agree too that if we ask you to conserve you won't do it for more than 15 minutes it's human nature to say well I don't see a problem where's the problem I'll push my thermostat up to the point where I can afford it so I think that we're beginning to understand now fully that the road to conservation is price that you get a man to conserve when it cost him more to drive cost him more to buy a battery uh or a tire cost him more to uh uh to heat his house or cool his house critics charge that none of the programs currently under consideration will have any real impact in forcing conservation some kind of restoration of our independence OT Xin is president of data resources Incorporated and a former member of the president's Council of economic advisers we I mean the kinds of programs that we are uh thinking about in this country are not very powerful programs we really are not responding sufficiently to the challenges in front of our NOS what should we be doing we've really got to do a lot more on conservation and we've got to do a lot more on Supply as long as Congress and the president Don't Force conservation our dependence on foreign oil is going to increase and that puts your future in the hands of OPEC with no guarantee that they will continue to provide the oil that we need you've seen what other countries are doing they're exporting everything that isn't nailed down to pay for their oil Bill they're enforcing conservation they're scrambling around trying to cope because they have to but so far we haven't and consequently our demand for imported oil has promoted inflation devalued the dollar angered our allies disrupted international trade and even threatened our national security it doesn't have to be that way we know what we have to do we have to conserve oil we have to produce more domestic oil and we have to switch to coal and alternate forms of energy if we don't not only do we all face more inflation but in the years to come whoever is in power in Iran and Saudi Arabia and the other oil producing states will have an astonishing degree of control over the way we live and that's frightening I'm Adam Smith with the United States ier to spil Yes uh 10 please 10 battles oil the United States thank you let me what do you think you have over there