By Alfio Cerami
This article examines the important role of oil prices and oil price cycles in the modernization and democratization of contemporary societies. The main argument put forward is that oil, oil prices and oil price cycles greatly influence the prospects for economic growth of a country, and the ways in which different waves (and reverse waves) of modernization and democratization take place. A particular attention here is given to the ‘oil revolution’ that has occurred in the post-war period, and its impact on the processes of modernization and democratization of contemporary societies.
1950s: The Period of Post-War Recovery
The 1950s were a period of recovery from the economic depression caused by World War II. Western economies were in ruin and managed to survive only thanks to the aid from the US Marshall Plan. For Eastern European countries, recovery was ensured, in contrast, thanks to substantial state investments under the umbrella of the Soviet Union. In the Middle East and North Africa (MENA) region, investments and transfers of funds from ex colonial powers was the ley driver of change. During this period, industries started to be rebuilt and the organization of labor began to be transformed. Keynesianism in the West, central planning in the East and a mixed of the two in the MENA region soon became the new dominant political economy instruments. As a result of the fast industrialization, the oil demand increased. In the US, annual oil production grew from 2.2 billion barrels in 1951 to 2.6 billion barrels in 1959 (see Fig. 1).
This increase was still not sufficient to cover the growing demand for energy caused by the economic and technological transformations. The annual US imports of oil, subsequently, doubled from 179 million barrels in 1951 to 352 million in 1959 (see Fig. 2) with the Middle East and North Africa rapidly becoming a zone of vital strategic importance (see Fig. 3).
Despite a growing demand, world oil prices remained, for several more years to come, below the threshold of 3$ dollars per barrel (see Fig. 4). Similarly, also for the Soviet Union, its satellite states (and annexed republics) and for the MENA region, a significant increase in oil demand necessary for modernization of their societies and industrial restructuring occurred. The 1950s were also the years when the first post-war tensions arose. In Hungary attempts of revolt against the Soviet occupation started on 23 October 1956 but were immediately stopped by Russian tanks after only few weeks on 10 November 1956. The 1950s were years of tensions in the West as well, characterized by the escalation of the Vietnam war and the Suez Crisis. Due to the rapid industrialization Egypt’s decision to nationalize the Suez Canal on 26 July 1956 risked making the trade with the Middle East more difficult in a moment of desperate need for energy for the West. It comes then as no surprise that military interventions immediately followed by a tripartite coalition of Britain, France and Israel (with the external support of the United States). These were terminated almost one year later (on April 24 of 1957) when the cease fire was declared and the Suez Canal was fully reopened to shipping.
The 1960s: The Global Economic Boom?
While the 1950s were the years of economic normalization and transition from the amenities of World War II, for the West the 1960s were the years of the economic boom, where the first signs of post-war recovery could finally be witnessed, affecting also the population at large. The Keynesian political economy started to create the first positive effects and the internal production of welfare improved. In the United States, GDP growth increased at an annual average rate of 3.7 percent, while GDP per capita rose from 14,091$ in 1961 to 18,323$ in 1969 (World Bank 2010). With economic development a significant rising demand in oil occurred, and with it a remarkable increase in crude oil production and imports. In the United States, the annual crude oil production grew from 2.5 billion barrels in 1960 to 3.3 billion barrels in 1969 (Fig. 1). At the same time, oil imports increased from 371 million barrels in 1960 to 514 million barrels in 1969 (Fig. 2). Despite a substantial increasing demand, oil prices continued to remain artificially low under the threshold of 3.3$ per barrel (see Fig. 4). This was due to, at the time, the small bargaining power of the Arab nations, but also to the difficulties that the Soviet Union had in selling its oil to the West.
The 1960s were also the years of increasing international tensions where the supremacy and hegemony of one superpower over the other (with associated supremacy of economic, political and societal moral order) was at stake. This was the decade of the Vietnam war, of the construction of the Berlin Wall, of the Cuban crisis, of the ‘Race to the Space’, of the assassination of John F. Kennedy, of the Prague Spring as well as of the students’ demonstrations in all the most important US and European universities. As shown in Fig. 4, oil prices remained stable during the entire decade, but, as it will be discussed in the following sections, this was then followed by unforeseeable fluctuations of prices with potentially disruptive consequences.
The 1970s: From Economic Boom to Global Oil Crisis
In the 1970s, the ‘oil revolution’ was already a reality, with rapid industrialization that primarily involved the automobile sector in the West, the heavy industry in the East and the development of the manufacturing sector in the MENA region. Urban development also followed this path with the quickly expanding metropolitan cities suddenly surrounded by an always larger number of roads and highways. During the 1970s, GDP growth continued to increase annually by 3.6 percent in the United States (GDP per capita from 18,542$ from 1971 to 22,840$ in 1979) (World Bank 2010). In 1973, after a decade of sustained economic growth for the West followed by a historical increase in oil utilization for the functioning of the post-war economic system (see Figs. 1 and 2; also Dienes 1983, 276), several tensions in the world energy market emerged. The apex of the ‘oil revolution’ was followed, in fact, by an unprecedented increase in oil prices caused by the Arab-Israeli War (also known as Yom-Kippur War). Crude oil prices skyrocketed from 4.5$ in June 1973 to 12.0$ in December of the same year, decreasing to approximately 9.3$ in January 1974 (see Fig. 5).
In order to avoid the risks of an unprecedented global economic recession, in line with Keynesian predicaments, a massive inflow of public money was put in the Western economies to foster the internal demand. This was coupled with an increase of oil production and followed by a diminution of imports (see Fig. 1 and Fig. 2).
The 1980s: The Neoliberal Turn
The tensions between Western and Arab nations did not stop with the Suez Crisis of 1956 and the Arab-Israeli War of 1973, but continued with the Iranian Revolution of 1978-1979 and with the Iran-Iraq war of 1980. As a result of these new on-going tensions in the Middle-East, crude oil prices jumped from approximately 14$ in 1979 to approximately 35$ in 1981 (see Fig. 5). The consequences of these changes in the world energy market were twofold. On the one hand, high oil prices reinvigorated the budget of several authoritarian regimes while reinforcing the power of OPEC. On the other, they dramatically depressed the US and Western economies, hence, calling for immediate action. In order to reduce the prices, starting from 1981, the US decided to remove price control and export barriers on oil. This decision, facilitated Saudi Arabia’s defection from OPEC-dominant policy of limited production, allowed crude oil prices to go down again, from 35$ in 1981 to 9.8$ in 1986 (EIA 2002). Under these new conditions, Western economies started to recover, while, the Soviet central planned economy faced a new phase of recession. This case should come as no surprise, that this is not only the decade of Ronald Reagan’s and Margaret Thatcher’s neoliberal turn, but also of Gorbachev’s politics of Glasnost (openess) and Perestrojka (restructuring). In November 1989, after a eight-year period of extremely low oil prices, the Berlin Wall finally collapsed (see Fig. 5).
The 1990s: Oil and the Establishment of Durable Basis for Future Conflicts
On 2 August 1990, less than one year after the Fall of the Berlin Wall, Iraq invaded Kuwait. Saddam Hussein’s primary objective was here to rapidly include the oil rich territory of Kuwait in the hope that a fast and successful war would not push foreign powers to intervene. The world energy market reacted, however, much quicker than the United States and the price of crude oil jumped from 18.9$ in May 1990 to 28.5$ in July reaching 36.5$ in December. The reactions of the United States did not come late. Prices, which were dangerously skyrocketing, began to fall again only in the subsequent months, when the decision of the United Nations to approve the use of force against Iraq (29 November 1990) made clear the existence of a unified international consensus on the Kuwait’s issue. Interestingly enough, the year 1991 coincides also with the dissolution of the Soviet Union, when crude oil prices went below the threshold of 30$ per barrel necessary to cover the costs of the transition towards democracy16. This situation of limited financial resources lasted until 1998, the Asian crisis, where the world crude oil prices reached 15.2$ per barrel in January to fall to 9.4$ in December. However, in 1999, following the OPEC decision to substantially cut the production, oil prices went up again (from 9.7$ in January 1999 to 24.4$ in December 1999) (see Fig. 5) and an unprecedented economic boom suddenly materialized in the Russian Federation and, to a lesser extent, in oil producing countries of the MENA region.
The 2000s: The Era of Global World Crises
The economic transformation of the 2000s involved a final shift towards post-industrial, knowledge-based societies in the West (Armingeon and Bonoli 2006). Concerns about climate change have more recently, also grown in importance in national and international forums, though the requests for reduction in CO2 emissions as expressed by the Kyoto protocol have, so far, remained mostly unmet. The COP21 conference in 2015 aimed at reducing this gap. The future outcomes are still unpredictable. Any alteration of the status quo implies not simply important economic decisions, but also vital political decisions with potentially disruptive consequences for existing and fragile geopolitical interests. This has occurs, however, in spite of the clear beneficial effects that a slow reduction in oil consumption might have for human development as well as for the overall destiny of the globe (UNDP 2007). Unsurprisingly, tensions for the access to this natural resource are on the increase (both in Middle East and Eurasia). Following the September 11th attacks, in November 2001, US and British forces intervened in Afghanistan in the Operation Enduring Freedom, then, followed by a new front in Iraq opened on 20 March 2003. While the primary objective of the intervention in Iraq was to stop the development of Saddam Hussein’s nuclear and chemical weapons development program in violation of U.N. Resolution 687, oil related issues were, probably, not totally absent from the scene. Paradoxically, while aiming at stabilizing the region (both democratically but also in terms of trade), the tensions and conflicts in the Middle East have resulted, again, in an exponential growth in oil prices and subsequent instability. The global financial crisis of the second half of 2008 and of 2011 has contributed to worsen this already difficult situation, and the aspirations for a world stable global economy have now been greatly reduced (see Fig. 5).
Oil Revolution and the Modernization of Multiple Modernities
From a historical reconstruction of events, it is clear that an ‘oil revolution’ has greatly influenced the post-war process of reconstruction while having also important repercussions for future waves (and reverse waves) of modernization and democratization. Eisenstadt’s concept of modernization of ‘multiple modernities’ can be helpful here. While criticizing the most common assumptions of ‘modernization theory’ (see Zapf 1991), which saw as an unilinear sequence of progress usually corresponding to the Western model of development, Eisenstadt (1966, 2005) has argued in favor of the existence of ‘multiple modernities’. According to the author, different waves of modernizations have occurred in structurally and culturally different societies taking the form of cyclical transformations of interconnected but still independent societal sub-systems (Luhman 1984, 1988, 1997). In certain societies, such as in the West, the problem of suffrage, of the definition of the new political community, of its independence, or of individual freedoms have assumed a central importance, while in other societies, problems of religious toleration, of secularization of culture (as in some Middle East countries) or of egalitarianism and communitarization (as in communist societies) have become most prominent.
Even though no precise definition of these particularities has been provided by the author, different patterns of social mobilization (Deutsch 1961) and of social differentiation (Parsons 1959) have, in effect, taken place in the two ‘modernities’. In the political sphere, the process of modernization brought about by the ‘oil revolution’ has involved, both in the West, East and in the Middle East, not simply an extension and consolidation of the territorial reach of the nation state, but also an increase in the power of the central, legal, administrative, and political agencies of the society (see Eisenstadt 1966; 2005). However, while in the US and in Western European non-oil producing countries, the incorporation of citizens into the new political, economic, moral and ethical order has been coupled with a devolution of power to wider political, economic and social groups, in the former Soviet Union, in its associate states and in other oil rich countries of the MENA region, new forms of centralized bureaucratic authority (as in the communist regimes) or of sultanism (as in the case of Middle East and North Africa) have altered the democratic practices, granting to the elites new and more extensive powers for conducting the modernizations of the societal sub-systems as they wished (see, for instance, O’Donnel and Schmitter 1986; Huntington 1991; Linz and Stepan 1996; Diamond 2008).
In the economic sphere, modernization has implied, both in the West, in the East and in the MENA region, the transition from relatively small-scale units of production (e.g. family firms, small factories, commercial and banking enterprises functioning in relatively restricted, local markets) to more centralized, bureaucratized, and larger units of production (e.g. big corporations, trusts, cartels in action in more encompassing, large-scale new markets). This has had important consequences for the process of technological innovation and, subsequently, have affected the main patterns of progress, including an alteration of the structure of the economy with a more complicated division of labor (see Eisenstadt 1966, 2005). Even in this case, important differences between different societies with different modernities existed. While in the US and in Western Europe, market coordinating mechanisms have been limited, with individual autonomy and free market seen as the main drivers of the new economic rationality (North 2005), in the former Soviet Union, in its associate states, central planning and collectivization of resources and responsibilities have become the main political economy instruments of modernization. These have also given birth to substantially different economic, employment and social structures, as it happened in the Middle East and North Africa, where oil price and oil price cycles have greatly influenced the patterns of modernization towards an increase in health and educational attainments, not followed, however, by a sufficient job creation.
In the sphere of the occupational system, both in the West, in the East and in the MENA region, modernization has involved the development of new professional categories and groups. From relatively uncomplicated societies which relied mostly on different manual skilled and unskilled occupations with only a small number of ‘middle-class’ professionals (e.g. trade and manufacture, or legal and medical occupations), new groups and categories of workers (welfare service, scientific, technological, managerial and so on) have emerged. This has then resulted in new and more complex categories of occupational manpower (e.g., technical, professional, administrative) as well as new professional occupations and associations (e.g. trade unions, new civic society associations and so on) (Eisenstadt 1966, 2005). However, while in the US and Western Europe free and relatively unregulated markets have resulted in an increasing social class mobility, wage, professional and income differentials (Erikson and Goldthorpe 1992), in the Soviet Union and its associate states, modernization in this sphere has meant the eradication of income differentials, seen as the quintessential of evil. The price that these societies have paid has, in turn, been a decrease in social mobility, and, subsequently, also in individual rewards and merits. Similar considerations apply to the case of the MENA region, where labor mobility has resulted in an increase in clientelistism, sultanism and political mismanagement, then ended with the Arab Spring of 2011 (Cerami 2015).
In the cultural sphere, both in the West, East and MENA region, modernization has involved a growing differentiation of the major cultural and value systems (e.g., religion, philosophy, science, literacy, secular education, intellectual institutional system and so on) (Eisenstadt 1966, 2005). Even in this sphere important differences, however, occurred. Such transformations, in fact, did not always result in a full secularization or democratization of society, as historical legacies and path-dependent behavioral patterns influenced later stage of development, hindering a full transition towards democracy.
To sum up, the modernization achievements obtained by the ‘oil revolution’ have been far from irrelevant and can be compared with those that have already taken place in previous waves of modernization and democratization. Carles Boix (2010) has brilliantly highlighted the importance of the ‘agrarian revolution’ (the period of transition from pre-agrarian societies to agrarian societies) as a crucial wave of modernization for contemporary European history. This period was characterized, in fact, by unprecedented technological changes and a new political management of inequality. For Boix, in terms of modernization’s and democratization’s achievements, the ‘agrarian revolution’ has not been any less relevant than the ‘industrial revolution’ that started in Britain in the eighteenth and nineteenth century. The ‘oil revolution’ of the post-war period discussed in the previous sections represents here a more recent piece of this puzzle.
To summarize, the key question here is to what extent do changes in one sphere of political economy influence or stimulate change in another sphere (Hall 2006, p. 191)? Let’s quote just a few recent technological innovations, as aptly discussed by Kornai in 2010 (see also Hannah Ritchie and Max Roser blog posts on Energy Production and Changing Energy Sources & Technology Diffusion & Adoption 2017). These include for example: the Laptop (1981 USA Epson), the mobile telephone (1983 USA Motorola), the Mouse (1984 USA Apple), the Pendrive (2000 USA IBM), the Hair dryer, hand held, electric (1920 USA Hamilton Beach), the Automatic pop-up toaster (1925 USA Waters Genter Co.), the Air conditioning (1928 USA Carrier Engineering Co.), the Saran plastic wrap (1949 USA Dow Chemical), the Roll-on deodorant (1955 USA Mum), the Ball point pen (1943 Argentina Biro Pens), the ‘Post-it’ (1980 USA 3M), the Jet-propelled passenger aeroplane (1952 USA Comet), the TV remote control (1956 USA Zenith), the Barbie doll (1959 USA Mattel), the Digital camera (1991 USA Kodak), the Credit card (1958 USA Bank of America) (Kornai 2010, Table 1, p. 3), to end up, with biotechonologies (such as those linked to biological engineering, and ICT technologies (Dolata 2013). These everyday products have, astonishingly, all something to do with oil and its associated products, including the so-hated plastic.
As highlighted by Iversen and Soskice (2009, 475), while it is true that the application of the microprocessor in the 1980s and 1990s has greatly altered the existing occupational structure of modern societies with new forms of wage and income inequality emerging as a result of the shift from manufacturing to services, this process of economic and societal restructuring could not fully materialize before the technological innovations brought by the ‘oil revolution’ in the previous decades. These have stimulated gradual changes in the spheres of the political economy that have spilt-over in subsequent institutional, political and societal changes. Missing these links is misunderstanding Why Nations Fail or succeed.
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