THE STATIST IMPULSE

THE CASE OF PETRO-CANADA

by

BRIAN J. LAWSON

B.A. (Hons.), Queen's University, 1977

A. THESIS SUBMITTED IN PARTIAL FULFILMENT OF

THE REQUIREMENTS FOR THE DEGREE OF .

MASTER OF ARTS

in

THE DEPARTMENT OF POLITICAL SCIENCE

We -accept this,thesis as conforming

to the required standard

THE UNIVERSITY OF BRITISH COLUMBIA

1981

© Brian J. Lawson, 1981 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission.

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Date

DE-6 (2/79) i

Abstract

The Statist Impulse: The Case of Petro-Canada seeks to find cause for

the establishment and phenomenal growth of Canada's National Petroleum

Corporation. The study argues that Petro-Canada is part and parcel of an

historically constituted statist dynamic common to all advanced capitalist

countries. Utilizing Marxist theory, the thesis contends that statism sen

ves to resolve the problems or failures of capitalist economies, and is

an essential prerequisite for the growth of capital. Such was the case with Petro-Canada.

The international oil crisis of the early seventies, which resulted

in so much economic disorder and concern about future energy security,

caused governments to increasingly turn to state enterprise, in the hope

of filling their national petroleum needs. The statist impulse was fur•

thered by the fact that the private oil companies, particularly in the

eyes of .the majority of governments, failed to respond to the crisis

adequately or satisfactorily.

After an examination of the western industrialized nations growing

reliance on state capitalist forms for obtaining energy security, the

thesis investigates Petro-Canada in more detail. The study develops the

point that Canada's vigorous public enterprise tradition played no small

role in the crown corporation's creation and success. It is then argued

that although the NDP and nationalist wave of the late 1960's spawned the

concept of a Petro-Canada, the Liberals and Federal state singlehandedly

implemented the proposal. The Government wholeheartedly embraced Petro-

Canada, not for the sake of the NDP, but for reasons having to do with

state capitalism. Through Petro-Canada's subsequent participation in

numerous joint ventures, the state has socialized part of the private i i oil industry's exploration and development risk so as to prod the petro•

leum corporations into greater activity. But the crown corporation has also acted as a substitute for the petroleum giants in certain areas, such as crude importation, so as to protect energy dependent general

capital.

The study contends that from a position of outright hostility

toward Petro-Canada, the private sector gradually accepted state inter•

vention into petroleum because of the lucrative joint ventures. Accord•

ingly, it is argued that the state acted autonomously in setting-up

Petro-Canada, without the support of the Canadian bourgeoisie.

Finally, the study looks at the effort to dismantle Petro-

Canada and concludes that statism, in the form of the National Petroleum

Corporation, proved too potent a force for the Conservatives to tackle.

The issue of 'privatization' politically isolated the from the majority

of and became such a contentious internal issue that it divided

and paralyzed the Conservative Government. In the end, Petro-Canada

helped defeat the Tories and symbolizes the victory of state-capitalism

over anti-statism. Contents:

Introduction

Chapter 1.1 The State As Entrepreneur

1.2 The Question of State Autonomy

Chapter 2.1 Oil and the State - The Growing Tide of

National Petroleum Corporations

2.2 The Oil Shock, the Reaction of the Multinationals

and the Chosen Instruments of Government

Chapter 3 The Public Enterprise Tradition in Canada

Chapter 4.1 From Oil Stability to Oil Crisis

4.2 The Rise and Impact of Economic Nationalism

4.3 The Storm Breaks

Chapter 5.1 The Night Watchman Awakes

5.2 In Whose Interests?

Chapter 6.1 Trying to Turn the Clock Back

6.2 Isolation and Disintegration

Chapter 7 The Triumph of the Positive State

Bibliography. -1-

On December 6th 1973, two months after the eruption of the world oil crisis, the announced in the House of Commons a plan to establish a National Petroleum Corporation. At a press conference after his speech, a reporter "suggested to Mr. Trudeau that his statement went beyond the demands of the NDP. He quipped- 'We have gone beyond the

Communist Manifesto'."^

Although Trudeau was being typically provocative in dealing with the press, his response holds an important grain of truth. The Liberal Party and federal state were quite capable of embracing statism, often beyond the expectations and demands of the NDP and socialist left. In doing so, Trudeau and his government did not suddenly become socialistic. This did not stop the Liberal Party from unleashing the state onto the petroleum industry in a serious way. To begin to understand this latest phase of statism for what it is- an effort by the capitalist state to cushion Canadian capitalism from the shock of a new and unstable world oil order- one must first comprehend the qualities of crude which have made the fate of the substance so decisive.

It is not an understatement to say that oil is the lifeblood of the modern age. If the industrial revolution was made possible by coal, then the breathtaking ascent of post-war capitalism sprang from oil. An incredibly cheap substance for most of its history, crude has the added advantage of being a more flexible energy form than any of its predecessors.

Thus, in less than a generation, these qualities enabled petroleum to penetrate every aspect of society. This is especially true of the industrialized powers, where all forms of production, not to mention -2-

transportation and heating, converted to. oil. The transformation, moreover, was done extravagantly, as if oil would always remain cheap and plentiful.

Like some growing addiction, day by day the destiny of industry and country became increasingly tied to this one strategic energy form.

Few seemed to wonder whether oil might some day become expensive and scarce.

Fewer still thought about the consequences of such a change and the possible depth of the aftershock. To a degree far in excess of most commodities, any change in oil prices or supply patterns would produce swift and decisive economic convulsions, wracking countries to the core. This is precisely what happened as a result of the 1973 oil crisis. This thesis argues that it is then up to the state, the only force capable of responding to such a massive upheaval, to alleviate and it is hoped resolve the crisis.

Governments realized more and more that the fate of their entire fossil fueled economics, which are so oil dependent that a recession is induced whenever supplies of the vital substance become problematic, could no longer be left so extensively in the hands of the private petroleum corporations. In fact, the evidence suggests that statism was assured precisely because the oil multinationals failed the test of the new oil order. They often exacerbated the blows of the oil crisis, favoured even higher prices for crude, or responded insufficiently to petroleum shortages.

With little faith left in the ability of the seven oil sisters to"deal with the crisis, the advanced capitalist states , with -the exception of the Ufi.i'ted States ,

increasingly interceded in an effort to obtain adequate oil as cheaply as

possible. In Canada, the state responded with Petro-Canada. -3-

The crown corporation's mandate and record suggests an important supplementary role vis a vis the private oil sector. As we shall see,

Petro-Canada has effectively socialized a portion of private capital's exploratory risk and development costs. Yet the evidence also indicates that Canada's state petroleum firm is increasingly engaged in activity which cannot be coined supplementary. Petro-Canada's refining and importation of foreign oil are functions which the petroleum corporations would prefer to perform themselves. In these instances, Petro-Canada acts as a substitute or replacement for private capital. In the estimation of this analysis, Petro-Canada and the state deemed such limited substitution necessary so as to protect the overall interests of oil dependent general capital. Similarly, the state's socialization of risk not only benefitted the oil corporations, but the entire bourgeoisie and economy, through greater exploration and development of petroleum reserves.

Statism is a very complex phenomenon. As far as this study is concerned, statism flows largely, though not exclusively, from government's having to ensure the general conditions of production or of social function•

ing, which private business is incapable of furnishing. Statism has encompassed everything from the takeover of bankrupt enterprises to the

creation of public broadcasting firms that replace enfeebled private ones,

increasingly, the state provides a boost to capital through the socialization of private risk. The thesis argues that in the economic sphere,: the chief

concern of the state is to maintain and further the private accumulation

of capital. Moreover, this statist function is a powerful, historically

constituted tendency in all capitalist countries. Furthermore, the study

contends that Marxist theory best comprehends and articulates statism in -4-

precisely these terms and as a result, will be drawn upon to enhance the analysis of Petro-Canada.

The point to be made is that the National Petroleum Corporation is part and parcel of this statist dynamic and exists primarily for the purpose of catalyzing the oil multinationals and protecting petroleum dependent general capital. Consequently the thesis points out that the Corporation must not be viewed as some isolated ahistoric fluke, merely derived from local Canadian conditions. Similarly, it should not be mistakenly portrayed as the product of a particular balance of political forces, or as a simple election plQy to garnish votes. In fact, the study considers that the establishment of Petro-Canada had little to do with placating irate consumers or those fed-up with gas station line-ups. This is not to say that consumers fail to benefit from Petro-Canada's existence, only that the evidence suggests the primary motive for the state's establishment of a National Petroleum

Corporation lay with the inability of the private sector to come to grips with an energy crisis that was rocking capitalism.

The study does not ignore the impact of Canadian nationalism and the country's strong public enterprise tradition upon Petro-Canada. Both played a role in the crown corporations successful take-off and survival.

Undeniably, the idea originated with economic nationalists coming out of the late sixties and was pushed by nationalistically inclined civil servants, the

Canadian Labour Congress and the (NDP). As well,

Canada's strong public enterprise tradition made the establishment of yet another crown corporation, following in the footsteps of a long list of

predecessors, that much easier. -5-

No doubt, the situation of a minority Liberal Government surviving by their fingertips from 1973 to 1974, courtesy of an NDP in hot pursuit of a state oil firm, provided added incentive to set-up Petro-Canada.

But the National Petroleum Corporation was far more than a mere capitulation to David Lewis. When a new majority Liberal Government came to power in 1974, one that no longer had to placate the NDP, the proposal nevertheless resurfaced. The Liberals rushed to pass Bill C-8, an act to establish Petro-Canada, as if the idea had never been mentioned by the NDP. The deepening of the oil crisis and problems associated with the multinationals, thoroughly convinced Trudeau and caucus of Petro-Canada's merit.

There were also forces acting against the establishment of Petro-

Canada. Most notably, the petroleum industry felt that the Corporation was unnecessary and might infringe on their activities. Consequently, in the immediate period after Petro-Canada's birth in July of 1975, they were major opponents of the state firm. Yet^as we shall see, with time and joint-ventures the attitude of industry changed. Part of their risk was increasingly socialized by way of Petro-Canada, with the result that the oil companies came to grudgingly appreciate this latest statist inroad.

The tendency for the crown corporation to also substitute for private capital and thereby curtail the activity of the oil corporations in certain instances, remains objectionable from the perspective of the multinationals, but does not abrogate the benefits they derive from Petro-Canada. -6-

Despite little initial bourgeois support for the idea, the state went ahead anyway and acted autonomously in setting-up Petro-Canada. The state did so in the hope of countering the dangers to capitalism suddenly brought about by the oil crisis and as a response to certain failures on the part of the multinationals.

Unlike the oil sector, the Conservative Party maintained their antipathy to the state oil firm. They had adopted a free-enterprise, neo- conservative stance in 1975 and the destruction of Petro-Canada, which was the latest embodiment of further statism, became Tory policy. The ensuing battle over Petro-Canada was perhaps the first seriously consccious effort to obstruct the historical evolution and march of the interventionist

Canadian state. Yet interventionism was not about to be rolled-back so easily. When given the opportunity of governing, the Tories were unable to dismantle Petro-Canada, let alone tackle statism. Anti-statism proved a difficult policy to implement. Confused, frustrated and internally split, the Conservative government's demise can in part be attributed to the strength of statism and their failure to come to grips with Petro-Canada. The last hurtle for statism in the traditionally private petroleum industry was thus overcome. Petro-Canada now has a free hand to expand at will. -7-

INTRODUCTION FOOTNOTES:

1. Globe & Mail, December 7th 1973 p.l. -8-

Chapter 1.1 The State as Entrepreneur

It seems that not a day goes by without the newspapers reporting yet

another state expenditure for some project or venture related to the economy;

either a subsidy for needy private businesses, the construction of a vital

piece of economic infrastructure, or more spectacularly, the establishment

of a new government enterprise. The contemporary state, whether one likes it

or not, is hopelessly mired in a multitude of economic functions. In more

and more sectors of the economy the days of the night watchmen state are gone

forever.

Amongst those who view themselves as more or less within the Marxist

paradigm, such as James O'Connor, Ralph Miliband, Nicos Poulantzas, et aj..,

there are many differences of emphasis when it comes to an explanation of

state intervention, especially in regard to public enterprise. Some try to assert-

tain, an explanation of government enterprise from the barrenness of Marx's

few comments on the state.1 Other believe the increase in statism is

attributable to a declining rate of profit, where the state directly steps

in to pick-up the resultant bankruptcies, or intervenes to impede any

tendency toward a loss in earnings. Still others view direct intervention

as a derivative of intra-bourgeois conflict, which compels governments to

takeover an industry to pacify a fraction of capital. Some would stress statism is an effort to aid accumulation by promoting capital expansion, or

else propose that public enterprise serves the function of legitimizing the

present exploitative system.^ Yet none of these individual contributions

comes to grips with the complexity of state enterprise. This chapter contends

that only an amalgam begins to do so in any comprehensive, way. Even then, Marxism

cannot explain each and every case of public enterprise. -9-

Notwithstanding those differences already cited, Marxists agree that the state is now indispensible to the successful functioning and operation of the capitalist economy. In addition, there is broad consensus that changes and developments in the mode of production largely account in one form or another, for the state's increased economic involvement.

Marxists also share certain underlying notions about the state, and accordingly about government enterprise. That is, they agree the state is a capitalist institution. Different Marxist theorists have different reasons for drawing such a conclusion. Many argue that the power and influence of the class of owners and managers goes a long way in making the state a capitalist one.5 Others articulate a view of the state as structurally determined by the mode of production, irrespective of the influence of the bourgeoisie.6 They argue that the private ownership of the means of production is decisive in defining the class nature of the state and the context in which government activities occur. Whether the class nature of the state is defined structurally or more instrumentally, in both accounts government enterprise is not implemented by a classless state institution removed from the surrounding capitalist mode of production.

Unlike the Social Democrats or Welfare School writers, who systematically obscure considerations of class interest and the capitalist nature of the state whenever discussing public enterprise, Marxism always views statism in its proper context. Simply put, government business ventures are imple• mented for the express purpose of dealing with some problem arising in the capitalist mode of production. During his lifetime, Karl Marx struck an important chord when analyzing and characterizing the state. Though he never developed a rounded theory of the state, Marx nevertheless was the first to accurately perceive the true nature of the state in regard to civil society. Marx argued that the modern state cannot be viewed outside of its social context.

It is a class institution situated in a particular mode of production, namely capitalism. This discovery sets Marx's contribution apart from all other theorists, such as Hegel, modern pluralists, and Welfare School writers, who purport to explain the origin and function of the state without reference to class or capitalism. It is the Marxist perspective, decisively launched by

Marx, which proves so vital when investigating the modern state and its activities.

Consequently, this thesis intends to draw heavily on the Marxist theoretical perspective, so as to better understand the state as entrepreneur and more specifically, Petro-Canada. The brief evaluation of the Marxist theoretical tradition in Chapter 1 is not intended to be exhaustive, given limitations of space, but merely to facilitate an explanation of why the state, via public oil corporations, socializes private risk and sometimes aggressively substitutes for capital.

As mentioned, it is true that Marx never attempted a thorough analysis of the state, let alone government enterprise. However, there is reason for

such a gap. The period in which he lived was not known for its statism, and the clairvoyance to foresee a multitude of government enterprises was not in

Marx's arsenal. In his day, many of the flaws or needs of the economy simply went unfulfilled or were resolved by market forces, without the state coming -11-

to the rescue. Still, he did not deny the possibility of a strong statist dynamic at some future date.^ Also, he noted that occasionally the capitalist o state directly intervenes to hasten economic development in hothouse fashion.

To his credit, Marx accurately perceived the primary function of the state to be the protection of the property of the exploiters; in the most elementary sense, the state was guarantor of the conditions, the social g relations of capitalism. Today the state possesses not just a repressive function to accomplish such a task, but exercises a vigourous economic role as well. If once its fundamental task was to guarantee private property largely through coercive means, then the present, more sophisticated economic function is no less with capital most in mind. Marx may be antiquated but not disproven; more than ever before the state nurtures and furthers the economic interests of capital.

While many a second generation Marxist focused onr.the international facets of capital accumulation, only a few paid any attention to the domestic activities of the state. It was this latter handful who managed to recognize that the capitalist economy and the state were undergoing significant develop• ments and becoming increasingly intermeshed. To their minds, "structural changes within national capitalist systems, that is ... the transformation of laissez-faire into monopoly capitalism" was responsible for the concomittant phenomenon of statism J° The socialist Rudolf Hilferding coined the term

"organized capitalism", where the state assumes a greater and greater role as the active overseer of economic production, especially with the aid of government enterprise. -12-

Building on Hilferding's observation of the growing interdependency of state and economy, Nikolai Bukharin spoke of "one combined enterprise under the tutelage of the financial kings and the capitalist state, an enterprise which monopolizes the national market."11 Contrary to Marx's day, the government ownership of railways, gas, telegraph and some mining reflected the integration of state and production. To Bukharin at least, this suggested

12 the future belongs to economic forms that are closer to state capitalism."

Although an accurate prediction, in the years that followed Marxists had precious little else to say about statism and direct intervention. That is, until quite recently. In the long intervening period which could best be described as one of analytic drought, the Communist movement actually made very little headway in theoretically keeping up with the unfolding evolution of statism. Instead, they developed a theory, known as 'state monopoly capitalism', in which the capitalist state was pictured in a highly deterministic fashion, bereft of autonomy.

As post-war Marxists, particularly Soviet and Eastern European ones during the 1950's, became increasingly satisfied with this substitute for serious analysis, they avoided the crucial need for some serious elaboration of Bukharin's initial contribution. Detailed discussion of the relationship of state and class was about as absent as any concrete investigation of the specific functions of the state. Consequently, the nuts and bolts issue of the government as entrepreneur,-was ignored, except to deterministically point out that the monopoly bourgeoisie dreamed up each fresh case of direct inter• vention. Only with the newest wave of neo-Marxists, who came forth during the last decade, has the task of analyzing state enterprise, in the context of the capitalist mode of production, gotten back on track. Thus, the long stultifying detour of 'state monopoly capitalism1 has ended and its theoretical hegemony has been broken.

How then do the major neo-Marxist studies account for the increased economic role of the modern state, and in particular, public enterprise?

A few place their faith in the explanatory value of Marx's orthodox profit 13

theory. Capital theorizes a tendency for profits to fall, based on a changing organic composition of capital, where the reduction of value creating labour, will prompt a drop in profit.^ It is postulated that as a result the state converges on the fields of the economy in which the rate of profit on invested capital is lower than the average. It is further argued that bankruptcies or sickly industries are the clearest manifestation of such a profitability crisis, and that these examples graphically illustrate the primary reason for the state's direct response, consisting of nationalization and takeover.

Immediately, numerous examples come to mind, which vindicate the assertion that declining profits induce most statism. Plummeting earnings certainly have caused enough corporate fatalities and lame ducks to lure the state into action, as proven by state interventions into railroads in Canada, coal mines in Britain or shipyards in Italy. In fact, even a state oil firm in Italy was once born in such a fashion. It is elementary knowledge that when profits fall, capital stops investing and goes elsewhere, leaving the enterprise to decay and collapse into the hands of the state. -14-

Nevertheless, in situations where a relatively poorer rate of return does apply, nationalizations are certainly not always inevitable.

The lengths to which the American government has been prepared to go to avoid outright state ownership of railways, Lockheed or Chrysler is proof enough of this phenomenon.

The problem with a profit theory of statism is not simply that decaying sectors of the economy sometimes fail to become nationalized, but that profitable industries sometimes end-up as public enterprises.

Moreover, the limitations of an interpretation which views statism as purely or even largely as a means to deal with the falling rate of profit, become abundantly clear when one looks at certain Marxists who seek to impose such an . explanation on every example of statism.

As just two examples, David Coates and Ralph Miliband attempt to force any and all state enterprise into the confines of an explanation based on a profitability crisis. To their way of thinking, the takeover- inclined post-war British Labour Party "restrict(ed) the boundaries of public ownership to industries whose previous performance in private hands had retarded the growth of GNP."15

Such an assertion is patently false. As they would have it, all the takeovers which ever occurred in England, or for that matter France,

Italy, or anywhere else, have been limited to sickly businesses marred by poor profits, low reinvestment and imminent bankruptcy. The case of British iron and steel contradicts their argument. The Labour Party takeover of the iron and steel industries was ideologically rooted and based on political

"I c philosophy, not economic performance. It is an example which a declining profit model cannot account for, let alone accept. A host of other state interventions can be similarly cited, which did not occur in low profit areas of the economy or within the confines of

Coates' criteria of "derelict industries".1^ Hydro-electric power in

Ontario, the Ehte Nazionale Idrocarboni of Italy, Renault and French armaments and aircraft firms were far from bankrupt or low-profit industries when the respective governments began to eye them. As final proof, the entrance of the state into the oil industry, both recently and in the past has had little to do with deteriorating petroleum profits. To say the least, the oil corporations continue to make larger day to day earnings than ever before. The declining profit theory of Capital cannot explain the origins of state enterprise in all its various mutations and forms; it provides only some occasional explanatory value. No profit explanation, especially one so difficult to fully understand or to verify, could possess the necessary analytic capacities upon which to build a complete theory of statism. Clearly then, other interpretations must be found to break the confining hegemony of a narrow theory of statism hinging on doctrinal notions of a crisis of profitabili ty.

To another prominent neo-Marxist, the same profitability theme still holds true, but it is interpreted somewhat more widely. For Nicos Poulantzas, the state "functions in directly setting underway the main counteracting

1R tendencies to the falling rate of profit tendency." Thus, to his mind, statism is not just a product of bankruptcies and lame ducks, but is also utilized to arrest the drop in profitability before it is too late.

The purpose of state intervention is to increase the productivity of labour, intensify the extraction of relative surplus value and de-value sections of constant capital. For Poulantzas,what is most significant in -16-

postponing the tendency for reduced earnings, is the state's involvement in the more efficient reproduction of labour power, through schools, technical training, health and so on. Statized capital, in the form of public enterprise, holds less significance in Poulantzas thinking than the role of the state in the reproduction of labour power. At most, government enterprise operates at a loss, and by "being devalorized permits the transfer of surplus-value to other sectors of (private) capital."19

No other economic related reason is advanced for the existence of government enterprise.

This being said, Poulantzas recognizes some of the limits of any contribution stuck in the groove of declining profits. In his last work, the uniqui vocal reliance he had once shown for falling profits no longer holds total sway. In State, Power and Socialism he admits:

state intervention is ...a history of uneven development, unfolding in accordance with the given formations and marked by both steps forward and steps backward. This cannot be explained entirely in terms of economic factors.20

Such a recognition of the complexity of statism comes better late than never. He introduces a 'political motive' for interventionism, to answer

"why the state also takes over sectors that are clearly profitable for

21 capital." The guiding investigative thread of Marx's declining rate of profit, as Poulantzas considered it, is suddenly placed in doubt- though he never admits as much. -17-

What he adds in regard to an explanation of state enterprise, is not the desired complex theory to explain a complex statist dynamic, but the sole suggestion that intra-bourgeois conflict leads to more government ownership. Poulantzas eagerly posits this single argument as the 'answer' to the riddle of how statism can also rear its head in profitable areas of the economy, a form of direct intervention he successfully ignored in his first three major studies on the state now becomes the central explanation.

He argues that where productive tasks in the economy are dominated by:

any one individual capital...the functions themselves may be quite drastically distorted in order to serve particuiar, short term profits. Such a development will considerably heighten the internal contradictions of the power bloc. It is thus a political necessity that these functions of general interest for the bourgeoisie as a whole should be discharged by the state.22

in fact, there are studies which confirm the applicability of this view to certain cases of government enterprise, though Poulantzas never mentions! them.

H.V. Nelles' landmark study of manufacturing versus financial interest and how this conflict led to Ontario Hydro, is a case in point.

Though sometimes a reason for statism, a number of criticisms can and should be leveled at his last contribution. Poulantzas takes a step in the right direction in his recognition of the complexity of interventionism.

But he largely fails to really follow through on a theoretical level.

Internal squabbles privy to the bourgeoisie surely do not account for all the direct state involvement in the economy, save bankruptcies and those public enterprises that run at a loss so as to transfer wealth to private capital. -18-

With all the state enterprise in Canada, only a small fragment can be explained by declining profits and even less by a political crisis of the power bloc. If profitable sections do come under the auspices of the state then few can be explained by his latest remarks. Having only slightly modified his profit oriented strait - jacket, he still cannot do justice to the true breadth of statism. Moreover, for Poulantzas and most neo-Marxists the specificity of different countries, with all their peculiar statist infl uences, are not considered. Rather, they are viewed as a dead letter. The impact of forces acting on the state, such as national ism,radical mass movements, social-democratic parties and wars have no positive impact on the boundaries of the state as far as Poulantzas is concerned.

He goes so far as to paint the oil crisis as apparent proof of his latest theoretical milestone. The actions of the oil companies, he claims,

"aroused such a response in capital as a whole, that the state...was forced

2"? to take responsibility in the realm of energy." His assertion, however, does not hold water. The proof is in the facts which Poulantzas chose to ignore. For instance, when intra-bourgeois conflict did arise, as in the case of the , state intervention was not forthcoming. Conversely, a lack of internal contradictions in Poulantzas' power bloc did not stop state oil firms in Europe or Canada from developing.

Although he has stumbled onto another explanation of statism, applicable in certain instances, he nonetheless overly generalizes and is too deterministic.

The state very rarely, automatically or in reflex manner, hears the pleas of a section of capital and responds. More often than not, as was the case in the oil crisis, there are no cries for state intervention, since those sections -19-

of the bourgeoisie negatively affected usually abhor statism just as much as those benefitting from the crisis. More significantly, he underestimates the ability of the state to make autonomous decisions in dealing with a particular crisis, such as the oil revolution, as it sees fit. For all his writing on the relative autonomy of the state the concept is actually placed in doubt by his latest contribution. On the contrary, especially where oil is concerned, the state usually acts alone and often possesses a longer term, more far-sighted consciousness than members of the bourgeoisie.

In another stab at analyzing statism, JamesVO'Connor tackles the problem of direct intervention from a different angle. Beginning where

Bukharin left off, O'Connor makes clear that the "growth of monopoly and

24 state sectors is a single process.' In a most useful fashion, he develops

Bukharin's theme of the developing interrelationship of capital and the state, emphasizing that today the "state sector is indispensible to the expansion of 25 private industry, particularly monopoly industries." To an increasing degree, certain "investment(s) are not borne by monopoly capital but rather are socialized and fall on the state. In short monopoly capital socializes more and more costs of production." O'Connor cites, for instance, science and technology, which is now so crucial to the growth of productivity, that it is being assumed by the state to a greater and greater degree. In this way, private capital has reduced expenses, while receiving a boost from the partial

'socialization of the costs of investment', as O'Connor labels it, courtesy of the state.

Thus, specifically in regard to public enterprise, "it is typically established by a partnership between the state and monopoly capital and is -20-

managed in the interests of accelerating capital accumulation in the

27 monopoly sector." Some enterprises are organized to run at a loss,

instead providing a cheap service to business. Others generate a surplus,

contrary to the myth perpetuated by Poulantzas, which is used to under• write private business by being plowed back into the state firm itself, 28

thereby furnishing a better service. In all of O'Connor's discussion of social investment and social consumption - that is, making the

utilization of capital more efficient and the working class more exploitable -

nowhere is the theory of declining profits used to the extent it is by

Poulantzas. Consequently, the Fiscal Crisis of the State is on much safer

ground than Poulantzas and his narrow framework.

Furthermore, O'Connor also recognizes that state enterprises exists

for reasons other than the need to further accumulation. Especially in

Europe, government business firms arise "to still political unrest and 29

underwrite the losses of private capital." The former is pegged by O'Connor

as part of the so-called 'legitimation function', whereby political crises

are averted by timely state concessions. Whether legitimation is applicable

or not he implicitly admits that the furthering of capital accumulation is

not the only reason for direct state involvement. Political movements and

bankruptcies play some role as well.

O'Connor's major theme, however, concerning the fulfillment by the

state of an accumulation function through the growing socialization of

private risk, encompasses many a public enterprise or other form of state

intervention presently in existence. Contrary to some of his contemporaries,

fixated with an analysis of statism based upon Marx's declining profits, or

pressure from a fraction of the bourgeoisie, O'Connor stresses the promotion -21-

of capital accumulation. He explicitly contends that statism focuses on the high profit areas of the economy, namely monopoly capital, to further accelerate the rate of accumulation. Corporate conglomerates, O'Connor argues, require correspondingly more and more social investment in relation to their own invested private capital, for the purposes of secure accumulation.

The state has been only too willing to provide the physical overhead, trans• portation, communications, research and development, and other facilities necessary.

Nevertheless, his analysis contains certain problems. He suffers from what can be best called a 'functional confusion', in which the reasons for direct intervention sometimes become confused with, and subordinated to, the present role of state intervention. Oftentimes, the result is a passing over of the original causes of statism and their replacement by the rubric of the accumulation or legitimation function. In particular, he tends to make all state intervention 'fit' an accumulation function whether its origin had anything to do with promotion or not. Consequently, O'Connor overly simplifies the forces behind statism, as do many of his neo-Marxist cohorts.

By narrowing the basis of statism, none of these theorists can account for the creation of companies such as Trans-Canada Airlines or the

Canadian Broadcasting Corporation. Neither declining profits, intra-class conflict, 'legitimation' nor the furthering of private accumulation lend themselves to answering why these specific but by no means isolated forms of statism actually exist. We need a broader definition of state intervention and specifically public enterprise, which fills many of the holes left by other neo-Marxists, but still recognizes -22-

the significance of developments in the mode of production as accounting

for much of the state's growing economic function.

According to another neo-Marxist Ernest Mandel, who begins by

posing a broader interpretation of statism, interventionism flows from the

necessary state "provision of those general conditions of production which

cannot be assured by the private activities of the members of the dominant

30

class." In a definitional sense, this is wide enough to enable the inclusion of a diverse spectrum of public enterprise, more so than previous contributions. For example, when private business is weak or enfeebled, not because of declining profits but simply due to the retardation and slowness of developing a particular industry, the state has often intervened.

The state responds to fill the gap, with no hidden motive of seeking to further private accumulation. In point of fact, wartime crown corporations,

TCA and the CBC were just such instances.

For Mandel, however, the gist of this definition is still inextricably

tied-up with and reduced to the state's socialization of costs as argued by

O'Connor, not that in and of themselves comments on the socialization of risk are inaccurate. In fact, Mandel nicely points out how, with monopoly capital,

a further extension of the functions of the state takes pi ace...It is a consequence of... the shortening of the turnover time of fixed capital, the acceleration of technological innovation and the enormous increase in the costs of major projects of capital accumulation...with its corresponding increase in the risks of any delay or failure in the valourization of the enormous volumes of capital needed for them.31 -23-

Flowing from this, he can accurately reason, there is an "inherent trend under late capitalism for the state to incorporate an ever greater number of productive and reproductive sectors into the 'general conditions of

32 production'." The hallmark of capitalism in this period is the increasing role of the state in research, nuclear power, sophisticated aircraft and many other leading edges of the economy. The purpose is to further aid and intensify the valourization of invested private capital. Here he would agree with

O'Connor that statized investment is decisive. Unmentioned, but certainly an applicable example, is the long historic role of state oil firms in socializing part of the risk for the private oil participants.

Mandel, unlike Poulantzas and most neo-Marxists, frankly admits that although Marxism has many strengths, an analysis of the function comprised under the rubric of the provision of the general conditions of production is not one of them. Unfortunately, he fails to abide by his own warning. The fairly broad definition of statism initially advanced by Mandel is actually interpreted, as with most neo-Marxists, in very strict terms. Other than state socialization for accumulation purposes, he has little to say about government substitution for feeble and relatively immature sections of the economy (e.g. TCA),1st .alone politically motivated interventions (e.g. British

Iron and Steel). Nor can his definition account for state ventures, such as some of those in the oil sector, where seemingly innocuous and non-economic factors as war reparations and security considerations have led to public enterprise.

It is simple fact, neither promotion, internal conflict in the power- bloc, nor declining profits can explain statism in all its multi-faceted forms. -24-

This is something neo-Marxists have yet to come to grips with and accept.

The post-war nationalization of the Nazi-collaborating Renault is all the necessary proof to show that exceptions to the Marxian economic function do exist.

O'Connor's so-called 'legitimation' function, where the state engages

in direct activity to placate the population, though of some explanatory value on rare occasions, cannot be utilized to save the day. 'Legitimation'

smacks too much of a last resort cure all for those politically motivated government interventions and conjures up such paternalistic and benevolent

images of the state that it cannot hold too much analytic weight. Rather than adjusting to allow for the exceptions of reality, while maintaining the primacy of an analysis which takes into consideration events in the economy and the structural requirements of capital, Marxism has shied away from such a requisite.

Furthermore, when it comes to the oil industry, the neo-Marxist discussion of the modern socialization of private capital costs can be partially misleading. It seems somewhat ludicrous to imply as they ,do that state enterprise, as in the case of National Petroleum Corporations, simply exists to socialize the risk for the rest of the private companies in the oil field. Often, public enterprise is more than a mere supplement for its immediate corporate neighbours. It is an active substitute, challenging and replacing the private oil firms. This reoccurs with state firms in other economic sectors as well, to protect and assist universal capital by super• seding particular private capital. -25-

This brings the analysis back to the earlier discussion of Poulantzas on the contradistinction between the general and particular interests of capital. It is not so much that an intra-bourgeois conflict alerts or activates the state to take action. Rather, the state is quite capable of autonomously perceiving the inability of the private oil firms to function sufficiently well. If these operations and services are drastically distorted in an effort to obtain particular, short-term benefit for the oil companies, or some wrenching crisis fails to be adequately dealt with by the private sector, then the state will drive its way into the industry.

Any socialization of risk from then on, exists mainly for the purposes of the rest of capital. At the expense of the private oil firms, the state effectively socializes fuel so as to ensure its rapid production and affordable price for manufacturers, transportation firms and the like. Articulating the common economic requirements for maintaining the mode of production, the

'overall capitalist' accordingly dispenses justice on the various sectors of capital as it sees fit. This is still entirely in line and consistent with a

Marxist analysis.

Neo-Marxism, however, has exhibited another flaw when it comes to analyzing direct intervention. It fails to tackle substantially; the issue of different patterns and levels of statism in the various advanced capitalist countries. It does not explicitly address, for instance, why the United

States has tended toward uniqueness, with the least public enterprise of any advanced capitalist country. At stake, is why a state oil firm comes into existence in one country and not another. To some degree, neo-Keynesian theorists have been better at grappling with this problem than their 33 neo-Marxist counterparts, because they recognize and emphasize such unique• ness. -26-

The United States has had an almost pathological distaste for

statism which has weighed heavily upon any direct intervention. The

special character of the American state has been determined by the

extensive and continuous industrial strength of the United States1; when

compared to the rest of the world capitalist order, which "allowed a

process of capital accumulation with relatively little support from the

34

state." An anti-statist ideology resulted, though it is an extravagance

which can only be relished by a vibrant bourgeoisie and resilent economy.

The heavy hand of this ideological legacy has acted back upon the state

and economy, tending to cauterize direct intervention. In part, the

continuing absence of an American state oil firm is due to this ideology.

In Europe, on the other hand, the luxury of a quiescent state

could not be afforded. The same was true of Japan. Contrary to the United

States, these countries have felt the need for the economic support derived

from state intervention, though each has historically exhibited different

degrees of receptivity to statism, some stronger than others. To catch-up, indust•

rially,;, in hot-house fashion, compete with each other, and in particular,

protect themselves from the economic might and industrial onslaught of the

United States, these countries have leaned more heavily on statized capital.

On this score, the discussion by Mandel, in Europe versus America (London, New

Left Books, 1970), on the continuing ability of the European and Japanese

states to defend their national capital, is more to the point than the analysis of Poulantzas, in Classes in Contemporary Capitalism (London, New

Left Books, 1975), which posits a bleak picture of a defenseless group of

states, embracing interventionism with no thought of indigenous capital in mind. -27-

Furthermore, statism in Europe is distinct from that in the United

States, because political movements and social-democratic parties have played much more of a role in expanding the parameters of the European states. For instance, French takeovers during the depression and after the liberation were more the product of mass political pressure than

35 anything else. The nationalization of British iron and steel is another case in point.

Amongst social democrats, Keynesianism rapidly became tarnished, since it was insufficient to surmount structural and regional unemployment and underinvestment. "To overcome this failure of the market, the state" increasingly ensured, in the words of one Labourite, " that large scale and long-term investment is undertaken which can provide conditions within which the market mechanism can be made to work in an economically efficient and socially just manner." State enterprise is one vital instrument in negating the "tendency of the market to promote sectoral and regional

37 disequilibria." Thus, a fairly rapid development of neo-Keynesian policies and conceptions of the welfare state, deepened the pace of statism already underway. Nowhere in the United States would one find Labour theorists such as Anthony Crosland advocating thaf'statism represents a 38 major social revolution."

As Andrew Shonfield has shown, in Modern Capitalism, the European bourgeoisie, unlike their American counterparts, tend to be more favourably 39 inclined toward greater planning and organization of the economy.

Consequently, government enterprise is seen in somewhat of a less gloomy light than on the other side of the Atlantic. Finally, certain European countries, particularly France, are imbued with the characteristic of an -28-

old and ingrained habit of the positive interventionist state. If the

United States goes to extraordinary (lengths to avoid direct intervention, then France is guilty of rushing to embrace statism whenever possible.

Consequently, neo-Marxists do not have the final word on public enterprise. Underlying changes or problems in the mode of production explain much of the direct intervention engaged in by the state. However, there remain clear exceptions to the rule. The historical pace of various nations, marching into the oil industry for instance, has often been affected by these contingent factors.

Having acknowledged these exceptions, the response of various advanced capitalist countries to the oil crisis nevertheless resulted from events in the mode of production, particularly the pressure of a dangerous international petroleum situation. The fact that the oil revolution had the potential of permanently damaging various capitalist economics necessitated ever more state action. Already in the context of the modern assumption of private risks by the state, the reinforcement and widening of a wave of national oil firms was assured. The private oil firms, with their particular interests, gained and lost under the glare of statism, but the overall welfare of capital was certainly enhanced.

1.2 The Question of State Autonomy

Neo-Marxists tend to not only simplify statism, but they also seek to reduce the actual autonomy of the capitalist state. At stake is whether interventionism, including the case of Petro-Canada, is the product of the wishes of the bourgeoisie, or is something largely self-initiated and -29-

executed by the state. For the Eastern European and Soviet advocates of

'•state monopoly capitalism', there is no debate: the establishment of every state instrument is inextricably tied to the immediate wishes and needs of the monopoly capitalist.

In a more serious analytic effort, Ralph Miliband in The State in

Capitalist Society has done a substantial job illustrating the "massive preponderance" of the bourgeoisie and managerial elite "in...the determination

41 of the state's policies and actions." Though often the case, the reality of various nationalizations, such as Renault, the British Steel Corporation,

and the CBC to name only a few, fail to correspond to Miliband's model. In each of these examples, capitalists and managers were quite hostile to the actions of the state, without registering any success at curtailing statism.

In contrast to Miliband, Poulantzas spends much paper attacking the

"vulgarized conception which sees in the state the tool or instrument of 42 the dominant class." Instead he poses a state which "takes charge... of the bourgeoisie's political interests, but in order to do this, the capitalist

43 state assumes a relative autonomy with regard to the bourgeoisie." Later we shall see that when it comes to Petro-Canada such an assertion certainly appears to be true. Poulantzas' discussion of relative autonomy does not prevent him from also carving the state up as it were, very instrumentally,

into sections, each controlled by different classes and fractions. For example, he claims "the state economic apparatus is currently one of the 44

privileged centers of the monopoly fraction." Although monopoly capital

certainly benefits the most from direct economic intervention, such

formulations tend to subordinate the self-activity of the state to a

fraction of the bourgeoisie: "every state economic measure... is necessarily -30-

adapted to the political strategy of the hegemonic fraction."

Other neo-Marxists similarly give initial credence to a "growing 46 hypertrophy and growing autonomy of the late capitalist state." Yet they also contradict themselves. With state economic decisions now so crucial and vital to the future of each particular capital, "the private 47 lobbies of the capital ist.-class acquire a greatly enhanced importance."

In this case, it is Mandel who seeks the best of both worlds and satisfies neither. In essence, he capitulates to an instrumental view of the modern state and its activities. Accordingly, he believes"the role of the 48 capitalist state (is) as an instrument of bourgeois rule."

O'Connor also makes little effort to analyze the autonomous nature of the capitalist state. Instead, he is satisfied with the explanatory value of the intricate web of informal relations between state and 49 businessmen." To repeat, the state "increasingly is under the dominance 50 of class-conscious monopoly capital."

Nor can Marx be brought out to clear the air, as this 'tradition' is pretty foggy when it somes to class and state. At best, Marx and Engels were prepared to grant the state large degrees of autonomy on certain occasions. Their writings on the Bonapartist, Bismarckian and Czarist

states recognized a large degree of autonomy. They realized that no other

ruling class is so profusely criss-crossed with internal competing and

conflicting interest groups so as to necessitate state autonomy. In other words, the state distances itself to regulate and to keep from suffering

the internal conflicts of the bourgeoisie. As Engels wrote, the state is 51

the "ideal personification of...total...capital." At other times, however,

Marx and Engels siimply viewed "the modern state (as) but a general committee -31-

for managing the common affairs of the whole bourgeoisie" - something 52 which has been interpreted very deterministically.

Many neo-Marxists are guilty of being overly deterministic in their evaluation of statism, and of consequently emptying the state of its independence and vitality. The physiology of the 'overall capitalist' cannot be so simplified. Full autonomy must be given leeway and any knee- jerk reliance on usually false images of bourgeois coercion of government must be avoided.

In the vast majority of cases, rigid deterministic models would fail to correspond with reality. As in Canada, most decisions to nationalize or launch a new state enterprise have met with the scorn of the bourgeoisie or at best their indifference. Nevertheless, statism has triumphed.

Similarly, in the case of Petro-Canada, the state did its own thinking and offended, albeit temporarily, an< important section of the bourgeoisie.

An autonomous state is not something to be conceptually feared by neo-Marxists. It still holds true, irrespective of meagre amounts of direct bourgeois influence on government, that the state is no less an] institution located and defined by the capitalist mode of production. The study contends that it is the capitalist system of production which dictates and explains much of the economic role of the state. In its relation to capitalism the modern state is dedicated to the reproduction of capital and the existing system of production. The activities of the state are bounded and structured by this overriding precondition of its very existence - the need to ensure the reproduction of capitalism and the optimum realization of capital accumulation. Notwithstanding the limitations of neo-Marxist theory already pointed to in the discussion, particularly its weakness in -32-

explaining all the multiple forms of statism , if such exceptions are not ignored then the Marxist perspective, which emphasizes the role of the state vis a vis capital, can be very insightful. This is particularly true for oil and the state. -33-

Chapter 1 Footnotes:

1. John Holloway and Sol Picciotto, State and Capital (London: 1968;

2. Nicos Poulantzas, Classes in Contemporary Capitalism (London: Books, 1975) p. 166

3. Poulantzas, State, Power, and Socialism (London: New Left books, 1979) p. Ii82

4. James O'Connor, The Fiscal Crisis of the State (New York: St. Martin's Press, 1973) p. 6

5. Ibid and Ralph Miliband, The State in Capitalist Society (London: Weidenfeld and Nicol son, 1972)

6. Poulantzas, Political Power and Social Classes (London: New Left Books, 1968)

7. Paul Mattick, Marx and Keynes (Boston: Porter Sargent Publisher, 1969) p. 131

8. Karl Marx, Capital Vol. 1 (New York: International Publishers, 1967) p. 751

9. Stanley Moore, The Critique of Capitalist Democracy (New York: Kelley, 1969) pp. 21-22

10. S.F. Cohen, Bukharin and the Bolshevik Revolution (New York: Knopf, 1973) p. 26

11. Nikolai Bukharin, Imperialism and World Economy, p. 72

12. Ibid, p. 118

13. Poulantzas, CI asses,p. 166

14. Marx, Capital, Vol. 3, p. 212

15. David Coates, The Labour Party and the Struggle for Socialism (London: Cambridge University Press, 1975) p. 81

16. R. Keif-Cohen, Twenty Years of Nationalization (New York: MacMillan, 1969) passim

17. Coates, p. 52

18. Poulantzas, Classes, p. 166

19. Poulantzas, State, p. 175 -34-

20. Ibid, p. 180

21. Ibid, p. 181

22. Ibid, p. 182

23. Ibid

24. O'Connor, p. 24

25. Ibid, p. 9

26. Ibid, p. 24

27. Ibid, p. 179

28. Ibid, p. 183

Z9. Ibid

30. Ernest Mandel, Late Capitalism (London: Verso, 1978) p. 475

31. Ibid, p. 483

32. Ibid, p. 489

33. cf. Andrew.) Shonfield, Modern Capitalism (New York: Oxford University Press, 1969)

34. Phil Resnick, In Search of a Theory of the Modern State (Mimeo) p. 37

35. John Sheehan, Promotion and Control of Industry in Post-War France ( (Cambridge, Mass.: Harvard University Press, 1963) p. 190 and

Warren Baum, The French Economy and the State (New Jersey: Princeton University Press, 1958) passim

36. Stuart Holland, The State as Entrepreneur (London: Weidenfeld and Nicolson, 1972) p. 6

37. Ibid, p. 7

38. Cited in Anthony Arblaster, "Anthony Crosland:.. Labour's Last Revisionist", Political Quarterly, Oct. - Dec, 1977, 42, p. 46

39. Shonfielid, p. 139

40. Ibid, p. 144

41. Miliband, p. 265

42. Poulantzas, Political Power, p. 256 -35-

43. Ibid, p. 284

44. Poulantzas, State, p. 171

45. Ibid, p. 169

46. Mandel, Late, p. 486

47. Ibid, p. 480

48. Ibid, p. 493

49. O'Connor, p. 82

50. Ibid, p. 65

51. Frederick Engels, Anti-Duhring (Moscow: 1935; p. 386

52. Karl Marx and Frederick Engels, The Communist Manifesto

53. eg. Renault and British Iron and Steel. -36-

Chapter 2.1 Oil and the State: The Growing Tide of State Oil Corporations

When it comes to crude oil there is one clear, though uneven, trend and that is for the modern state to increasingly turn its attention to the fate of this strategic material. The growing economic importance of oil has led to correspondingly higher levels of state intervention, with the notable exception of the United States. In many countries, the oil crisis and its aftermath had the most dramatic impact on this long statist trend. Today, virtually every European country, forty in Asia and Africa, and all but three in Latin America possess their own state oil enterprise. In coming to grips with why the advanced captialist nations, which are the ones most comparable to Canada, embraced or refused statism, much will be revealed about the case of Petro-Canada.

Seldom have falling profits or bankruptcy resulted in the state takeover of an oil company. More often than not, it is the hesitancy of domestic business to invest in oil and the predominance of foreign petroleum giants on homesoil that has led to direct intervention. Usually, governments have viewed such a situation as not in the national interest. In Europe, for instance, various states' have long intervened in the oil sector to ensure that the consuming public, the economy and the domestic bourgeoisie obtained the maximum advantage from oil. It is a fact that these governments developed larger and larger state oil ventures because the predominant American 'multinationals' were considered to be too unaccountable and bent on charging maximum prices for imported oil.* As we shall see, this government attitude is documented by many studies and was only reinforced

2 by the oil crisis. If the various national bourgeoisies of Europe had been -37-

more vigorous in building up domestic petroleum corporations, then state

intervention into oil might have been dampened. But this was not to be

and so governments have had to fill the gap left by capital.

In the United States, on the other hand, with its widespread oil

reserves and domestically controlled petroleum corporations, the state has

not been compelled to adopt direct intervention over the last century.

Therfimassive political weight of the oil corporations in America, the

positive contribution they make to the country's balance of payments, the

apparent satisfaction of government with their track-record, and the

United State's tradition of non-intervention, have all combined to block

the creation of a public oil firm. Even in the face of the oil crisis

these factors continued to hold statism at bay.

Canada, on the other hand, has been highly reliant on foreign oil

firms for most of its history. One might expect Ottawa to have turned to

statism like her European counterparts long before the ly70's - especially given Canada's public enterprise tradition. However, she possessed little

proclivity for indigenous ownership of vital economic sectors compared to most states. Additionally, though there is little evidence to suggest the multinationals treated Canada any better than European countries in the years before the oil crisis, successive Canadian governments seemed quite satisfied with the service rendered by the oil giants. Also important, the post-war

discovery of Albertan reserves allowed the Canadian state to feel cosy and

satisfied with non-intervention, by reducing the dependence on multinational

controlled oil imports. Yet in Chapter 4, we shall see how the oil crisis

and the return to dependency on foreign petroleum in the mid-seventies,as total -38-

consumption rose above production, marked the end of the long reign of the multinationals in the Canadian oil patch and as supplier of foreign crude. Diverted tankers, disappearing reserves and an exploration strike, all courtesy of the oil companies, would finally make the behaviour of the multinationals unsatisfactory in the eyes of the Canadian state.

The earliest instance of a state entering the oil business was Great

Britain, where in order to guarantee fuel supplies for the Royal Navy, the government created British Petroleum in 1913. Soon after the First World

War, France inherited her very own oil company through the takeover of

Iraq Petroleum, ceded by German interests under the Versailles Treaty.

France quickly concluded'that if she wished to break the rapidly developing

British Petroleum hold on the continent, the prize had to be activated.

Around the same time, Italy set up its very own counterpart (AGIP), with similar goals of exploring and obtaining a toehold in foreign reserves.

A decade later, during the depression, certain private Italian firms collapsed and were added to AGIP. Thus, the circumstances surrounding the birth of these companies were diverse, including considerations of security, reparations, bankruptcy and even prestige.

Prestige entailed a refusal by each state to rely on some foreign oil firm to provide the energy requirements of the country. At that time,

it was not as if oil was the dominant energy form, whose absence might

rapidly destroy a national economy- still, petroleum was a • prestigeous industry comparable to aircraft, automobile or engine production.

Every self-respecting nation-state required its own. -39-

Nevertheless, there were material reasons as well for government's building and expanding state oil enterprises. Prospects for the future utilization of crude looked promising during this period and every major

European state wished to maximize the national economic benefits of such a potentially strategic fuel. These governments felt that domestically owned oil firms, in particular those with state participation, tended to be more responsive to the needs of the home country than their foreign counterparts. Due to the hesitancy of private entrepreneurs, moreover, the state had to intervene in a direct manner. The refusal of the domestic private sector "to go it alone" and build-up sizeable oil firms capable of worldwide exploration and production forced the hand of the state. On the state fell the responsibility to act as capitalist,- otherwise, a domestic oil firm would never exist. Consequently, in each of the European countries "it was the respective governments which stepped in to put a

3 national company on the map in the first instance'!. National oil firms quickly became private-state ventures, enabling bourgeois participation in the risky business of oil, which otherwise would have stayed home. Thus, motives of national prestige became part and parcel of governmental efforts to maximize industrial promotion via the construction of national oil firms; companies that might provide' cheaper and more recu're petroleum for -' the nation than the foreign multinationals.

In the United States another set of conditions applied, which kept the state out of the oil industry and most other economic sectors as well.

To begin with, American capital, a pioneer in size and ability, did not require any of their petroleum related risks to be socialized and assumed -40-

by the state.; Private business was quite capable of going it alone.

In a country where five of the seven largest oil multinationals in the world were born, it was unnecessary for the state to substitute or worry about national prestige. To top matters off, the existence and continuing discovery of domestic reserves meant even less need for state concern. Finally, a very strong tradition of private enterprise, assuming ideological proportions, weighed heavily on any statist notion, though no reason existed to seriously consider direct intervention in the first place.

The post-war oil boom had no new impact on the traditional abstinence of the American state, but in Europe it ushered in an even greater role for state petroleum corporations. ENI for example, the post• war Italian national oil venture, perhaps best illustrates how such public enterprises came to play an increasingly decisive role in stimulating the entire national economy - particularly industry.

Against great odds and with some success, "the ENI, whose intended function was to provide low-cost energy for Italy, played the dual role of attempting to beat down the price of imported crude oil, and to gain for Italy direct ownership of overseas oil".^ Increasingly during the post-war period, the ENI served less and less the purpose of making life easier for those oil shy Italian capitalists who needed their hand held by the state. Instead, more and more it furthered the interests of general capital. From an equal joint-venture with the state, private capital became a tiny shareholder in the AGIP subsidiary of the ENI. Private oil capital was left by the wayside as the state stepped in to do the job alone: "to apply to the National economy the stimulus of plentiful domestic -41-

fuel for industry at a cheap price". As Andrew Shonfield notes,

Italian "industry suffered from a disadvantage during its early development...because of its lack of cheap domestic fuel", but due to the ENI this was "decisively reversed from the early 1950's onward".

In so doing, the ENI came into direct conflict with the foreign multinationals functioning in Italy. Bereft of indigenous crude, Italy's disadvantage had been maximized by the giants, who attempted to extract every cent possible for imports. The ENI got into the act to undercut such dependence through the importation of politically 'hot' but relatively less expensive Soviet oil. Also, by acting as the middlemen and importing oil from any source available, ENI undermined the "international companies" controlled system of oil pricing, (which had) placed Europe under an unnecessarily high burden of foreign exchange costs".'' Since the expense of importing energy is a major burden on scarce foreign exchange, every dollar saved or funneled through the state oil firm was to Italy's advantage.

Thus, the government actively sought to-reduce the share of the market held by the multinationals and to replace them with public enterprise. In other words, state substitution did not aid the oil multinationals but instead directly challenged them. Obviously, a joint ownership corporation such as AGIP had not enabled the state to pursue a strategy of petroleum self- reliance rapidly enough.

A growing user of oil during the post-war period, France suffered from many of the same problems as Italy, such as an absence of reserves and the weighty preponderance of the multinationals, and consequently took the same action in the hope off obtaining the same benefits. France chose -42-

to rely less on the older joint-venture, Compagnie Francaise de Petroles

(CFP), seeking instead to exercise full governmental control in a wholly owned and very powerful state oil firm, namely ELF-ERAP, established in o the days of Gaullist nationalism. In so doing, the purpose was to better secure the full advantages of cheap and plentiful petroleum for an increasingly oil dependent French economy.

Britain, in the meantime, continued to rely on its part ownership in BP. It would take the oil revolution and the discovery of North Sea reserves, to convince the Labour Government of the benefits of full owner• ship of a state petroleum firm, especially for the sake of Britain's badly neglected industrial base. As it turned out, however, Britain fared better with only BP, than France did with her wholly owned petroleum arm.

The North Sea favoured the British. France, on the other hand, after so much initial success, saw the nationalization of ERAP's concessions in

Aclgeria just before the 1973 crisis, which threw the country into the same boat as oil poor Germany and Italy. "Once more in search of an independent crude oil base", France's dilemma illustrated that state oil firms were by g no means an automatic guarantee of oil abundance.

Historical and political circumstances blocked Germany's efforts to emulate her European neighbours. Although under the same constraints, that is, lacking local reserves and a bourgeoisie prepared to take the plunge into oil, Germany has not possessed a domestic petroleum company for most of her history. War reparations robbed the first efforts in 1920, while the

American post-war military and political occupation, quite hostile to further German statism, put any notion of a national oil firm on ice. -43-

Defeated and impotant, "Germany recognized (that) the principal (role would be) played by foreign owned, mainly Anglo-American oil companies."^

The dependence and disadvantage to the economy which this entailed was accepted. Only in the mid-sixties, after American hegemony had waned and oil imports had soared, did the state begin to take measures to safe• guards industrial structure highly dependent on foreign oil-to the

11 tune of over 50 percent of all energy consumed in the country. Yet the continued reluctance of German capital to become embroiled in an oil industry already dominated by the multinationals necessitated state involvement.

Government financial aid was followed by pressure on the few small German oil firms that did exist to fuse, culminating in a company with direct 12 state participation called VEBA.

Initially hydro-powered before the last war, Japan showed little interest in petroleum when compared to other industrialized nation.

Considerations of prestige had little impact either. As with post-war Germany, defeated Japan also came under the American wing, enabling the multinationals to introduce petroleum, without fear of Japanese state interference, and 13 to control much of the country's marketing, refining and all of the supplying.

Consequently, Japan moved rapidly into the oil age, so that by 1973, up to

BO percent of the country's entire energy requirements came from imported oil.14

As time passed by, every additional barrel of oil unloaded on the

Japanese islands proportionally moved matters out of Tokyo's hands. Very slowly, -44-

successtye Japanese governments...worried about oil to an increasing degree, and their degree of concern has been gradually reflected in an increasing willingness and intention to do something about itJ5

But old ways seemed to die hard and Japan actually took little decisive action as she drifted toward a precipice.

The country did take one step and inaugurated a small Public

Petroleum Development Corporation (PDPCj in 1967 to try toopromote the growth of oil supplies under Japanese control, and hence available at lower foreign exchange costs. The corporation's aim was to engage in joint-ventures, guarantee loans to domestic oil firms, grant technical advice and fulfill any other requirement necessary whenever a state socializes costs.16

Inevitably, as elsewhere, the Japanese state came into conflict with the foreign oil multinationals. Under an original post-war agreement, Japanese refineries were built with 50 percent participation by the American oil giants, and the permanent right of these foreign companies to supply all the crude oil ever needed by the refineries.1^

PDPC efforts to import cheaper Soviet oil, or crude from non-multinational controlled concessions and have it refined has often been blocked by these same oil giants. The result has been tension and conflict. Even under pressure, there has been a real "unwillingness of refineries in Japan controlled by foreign companies to take more than a very limited amount";

Consequently, Japan was faced with a number of oil related problems when she entered the 1970's', the multinationals, a foreign exchange drain due to massive crude imports, an ever^heightening dependency on the whim of -45-

those countries, who control the Middle Eastern reserves, and a reliance on non-Japanese tanker fleets.

Consequently, when it comes to petroleum, in all of the major advanced

capitalist countries save the United States, statism has been the case to

some degree or another. Due to the specificity of each country, the size

of these state oil enterprises and the degree of government control over

their actions has varied widely.

2.2 The Oil Shock, the Reaction of the Multinationals and the Chosen

Instruments of Government

In October 1973, OPEC imposed unilateral incremental crude export

restrictions and price hikes on a number of nations. This move, in con• junction with earlier price jumps, effectively destroyed the world of oil as it had been traditionally known. A crisis of qualitatively different magnitude than any previous energy related problem now faced the western

industrial states. Somewhat ironically, it was precisely

the very success of oil in sustaining economic growth and in penetrating new markets which exposed the major industrial powers t*o increased dependence on a small group of oil exporting countries (see Appendix A)19.

During the embargo, France and Britain were given most favoured status by OPEC, whereas the United States, Japan, West Germany and the

Netherlands came under the gun for their pro-Israeli stance. The multi-

/ -46-

nationals, still responsible for a good portion of crude supplies to

20

Europe and all of North America's , announced to these countries, including Britain and France, that future oil needs could not be met and the cost must rise. The announcement hit home as all the western "industrial countries became desperately concerned with the security and 21 the price of their oil supplies". Those absolute increases in petroleum needed to fuel new economic growth would be the first to disappear, followed by the erosion of the crude imports necessary to maintain the level consumed in years past.

In the thick of the crisis, every country but the United States became extremely wary of the actions of the majors, the medium-sized independent oil companies and even their own state petroleum corporations. In the case of the private oil companies, most notably the five majors and seven mediurn- si zedc independents, autonomous decision-making has always occurred largely beyond the power of the nation-state. These business organizations rank among the most sizeable corporations in the world and are capable of mobilizing tremendous financial, economic and political resources. For instance, the biggest of the multinationals rival many states in revenue alone. Their ability to make policy in the confines of the corporate board• room, with perhaps profound repercussions on a country's price and supply 22 of energy, has been well documented. Their control of major crude con• cessions, tankers, refineries and distribution networks also means that incredible pressure can be brought to bear on governments deemed too interventionist.

The interests of the oil corporations and national governments often diverge. As one study concerned with the relationship between state and -47-

multinationals concludes:-

governments will find time and again that the companies - the private ones based abroad but also those with a domestic base ... - operate under criteria other than the national interest, which government may spell out at a given time. Actions designed to provide profit maximization, asset maintenance and growth, or transnational flexibility - in brief, those that seemed "good for the company" - are often found bad by the prevailing criteria of national interest.23

Such a conflict is precisely what transpired during the oil crisis and resulted in further government reliance on statism.

The most apparent response of the multinationals to the crisis was that the implementation of OPEC supply restrictions wouild take place.

In other words, the oil giants co-operated fully with OPEC. Whether they had any choice or not is debatable, but what is clear is that most western nations felt the multinationals were over-zealous in applying the embargo. The apparent eagerness and intransigence of the multinationals in immediately restricting shipments and arbitrarily setting higher prices poisoned their relations with numerous states. One study argues that except for the United States,"the characteristic response of the consumer governments has been that company dispositions have a great deal to do

24 with ...passing on costs and shortage".

According to Mendershausen (Baltimore: John Hopkins Pres, 1976) and

Stobaugh (Daedalus Fall, 1976") the basis upon which the multinationals operated in allocating petroleum supplies during the energy revolution was that all countries would suffer shortages. They functioned as an authority -48-

above all governments, attempting to distribute reductions across the board. The motive behind such an equilization effort was that the various

corporations wished to reduce the chances of losing any of their particular markets in different countries. Markets completely starved for oil might

turn to other supplies or forms of energy if the opportunity arose.

After the embargo was over, however, it was clear that the multi•

national strategy of generalized cuts had not led to uniform suffering.

The private oil sector may have slightly cushioned OPEC reductions to some of the embargoed countries, but as a result made victims out of

innocent nations.

If any country could be said to have benefitted from the multi• nationals it was Britain. It received enough crude from the majors and independents to even meet forecasted growth needs (see Appendix B).

Others suffered more than they should have at the hands of the multinatio• nals. France, supposedly embargo free, received slightly more oil from the majors than a year earlier, though not enough to reach projected growth needs, while the independents cut their shipments to the country by 87%. This did not endear them with the.traditionally nationalistic

French state.

In absolute terms Japan did not do too badly with the majors, and did even better with the independents, but when measured in terms of the country's forecasted requirements, supplies were off 11%. The oil companies shipped 12 - 15% less oil to the United States than in the equivalent period of a year earlier, and almost 30% less than forecasted needs. The same was true of West Germany, though to a lesser degree. -49-

Quite significantly, out of all of these governments only the

United States was not overly dissatisfied with- the efforts of the multinationals. As far as most of these countries were concerned the oil giants were considered culpable along with OPEC. Governments felt frustrated in their efforts to obtain first priority and have their best interests served by the multinationals. The oil corporations were just too autonomous for the likes of most governments. Before discussing the response of these dissatisfied governments, it is first useful to complete the picture by mentioning diversions.

As part of the multinational strategy to distribute the scarcity, tanker diversions became a regular occurence, though amounts and destinations have never been determined. One study claims that the five majors alone diverted 31% of their crude oil during the embargo, to

25 countries other than the original destination. Numerous press reports and government outcries about tanker route changes suggest the diversions may have been even more widespread and not simply limited to the majors.

Few issues during the oil crisis were as explosive or as damaging to the reputations of the oil corporations as when a government found that much needed oil was being diverted elsewhere. Often higher oil prices in another country resulted in tankers receiving new orders to change route.

Yet this should not be generalized. West Germany, for example, where fuel prices were relatively higher.than elsewhere, was not flooded with diverted, non-Arab embargo-free oil.

It seems that many of the tanker diversions resulted from adjustments in the world wide allocation of crude by the multinationals. The oil companies took non-Arab crude away from embargo-free Britain and France, -50-

and instead sent it to the United States and the Netherlands. In

accordance with OPEC restrictions Arab oil was diverted from these

latter countries and sent to France, Britain and after she was removed

from the embargo list in mid-November for modifying her policy in favour of the Arab cause, Japan. From the viewpoint of the multinationals such

alterations in crude shipments were the lqgical way to get at least some

petroleum to all nation-states. From the perspective of each individual country, however, it was difficult to remain inactive and hope.an allocational

system, which they had no controllover, would work while industries closed and full tankers ended up elsewhere. Governments became more and more sceptical as the economy slumped due to petroleum scarcity, while corporate

profits soared ever upward.

There is not a complete correlation between the treatment received

from the oil giants and whether governments turned to further statism.

The United States, for example, certainly suffered the full wrath of OPEC

cuts and the multinationals failed to save the day. Yet unlike the frustration felt by many countries with the oil corporations and with

government impotency in the face of the crisis, the United States reacted differently. Only Washington could overlook the fact that just before the embargo "refinery runs in the United States were under capacity, despite

the availability of sufficient crude and the abundant evidence of rising

demand".27

Many factors enabled the government to remain satisfied with

private business and to avoid the world-wide dynamic toward state involve• ment in energy. Washington did not feel the same distrust in the majors and independents as did many nationalisticailily inclined European countries -51-

and thus viewed the multinationals in a more favourable light: as victims of a bind who had not let America, down. Furthermore , the majority of these corporations were controlled by Americans, and could not be criticized as foreign controlled and therefore uninterested in

American oil security. Moreover, the strong free enterprise, non-inter• ventionist tradition of the country stood strong in the face of events in

1973. Finally, the uncritical state attitude toward the petroleum con• glomerates was also determined by the enormous profits reaped by these multinationals thanks to the oil revolution, profits which flowed into the United States and positively affected the country's balance of payments.

Japan, on the other hand, could have done much worse under the benign despotism of the multinationals, yet still reacted in a nationalistic and interventionist fashion. The Japanese government felt particularly impotent during the crisis, and had to rely warily on foreign corporations for this most crucial of imported commodities. The fact that the press reported multinational diversions of 30% of the oil originally intended for Japan, did not buoy up the government's faith in Exxon and friends.

Indeed, the fact that Japan's GNP declined precipitously, more than any 28 other western nation, was further incentive for state action. With a strong statist tradition, Tokyo refused to stand idly by, and instead assumed increasing responsibility for obtaining adequate energy supplies.

The government stepped up its support for the PDPC. Soon, the result was that consorta led by the PDPC won oil concessions in the Middle

East, Canada, Indonesia and elsewhere. Although any oil discovered would not be automatically embargo-free in the future, it would also not be controlled by some foreign multinational. Shipped oil could not be -52-

suddenly diverted by the petroleum corporations, since it would be under

Japanese auspices. The government, through the PDPC, also began to

"substitute bilateral government agreement for importation by private

29

firms in order to stabilize the flow of oil imports". Not only would

Japan control the crude from the moment it left port, thus avoiding

untimely diversions, but the government also considers state-to-state

contracts more reliable than private ones. The refusal to supply a

private multinational with oil is one thing, but for OPEC to break a

direct contract with another sovereign state is more serious, especially

since Japan could retaliate by stopping construction of various massive

industrial projects with which the oil is paid.

West Germany also turned increasingly to a statist splutipm/.' In a

similar effort to obtain direct long-term concessions and oil contracts,

Bonn continued to encourage the fusion of private domestic petroleum firms and the state oil arm. The result was a company called Deminex Veba, large enough to bypass the foreign majors and capable of directly importing Middle

Eastern crude.^

With forecasted needs fulfilled, the United Kingdom had the least

to complain about of any western country. Although disillusioned by an

ineffectual part ownership in BP - the corporation actually ignored Prime

Minister Heath's demand that Britain receive preferential treatment - the government did not establish a fully-owned statist alternative to BP or the multinationals. Instead, Britain sought rapid private development of North

Sea oil to quickly reduce dependence on crude imports, and thereby curtail a balance of payments deficit stemming from petroleum payments. -53-

Only after there was no chance of North Sea development being

set-back for years by a vindictive oil industry, did the Labour Govern• ment establish a fully owned state oil arm. Turning its back on BP,

Labour started anew with the British National Oil Corporation (BNOC) in

1977. The government viewed BNOC as crucial to maximizing the national benefits from North Sea oil. Until BNOC, Britain had little influence

in these fields and had to depend on the foreign multinationals and

unreliable BP. Through the socialization of a good portion of the

reserves, BNOC sought to pace the exploitation of the entire North Sea

and to lure the majors into developing the more marginal fields that had

31 been ignored as unprofitable. According to Tony Benn, the Energy

Secretary of the time, "without BNOC, the security of supply of oil upon

32 which British industrial strength rests, would disappear". Benn

considered BNOC essential in checking the multinationals and in ensuring

the planned, long-term availability of crude, which would be so decisive

in rebuilding England's industrial base. On assuming power, even that

ardent disciple of neo-conservatism, Margaret Thatcher, recognized BNOC's worth and stood unalterably by the corporation.

France responded to the crisis as had Italy and West Germany, seeking long-term bilateral agreements with numerous oil producers.

The crisis had led France into direct conflict with the private sector

independents and even their own chosen instrument. Not only did the

independents turn a deaf ear to France's order that they honour the

country's most favoured status granted by OPEC, but the CFP did exactly

the same. -54-

At this most crucial moment in 1973, a problem with the account• ability of domestically owned oil firms became glaringly apparent. Joint private-government ventures, such as CFP, BP, Belgium's Petrofina and even

Italy's ENI, were questionable agents for guaranteeing a country's national petroleum security. As with the majors, the maximization of profits and the protection of all markets, foreign as well as home, became the operating criteria over and above 'mere' national interest. The joint ventures failed to respond to their governments! request for preferential treatment.

Petrofina even engaged in an importers strike, organized by foreign based companies, against Belgium's efforts to hold down oil prices.

As they grow ever larger "state-owned companies tend to become not- 33 oriously independent of their governments". Thus, over time, governments have seen themselves become idle bystanders, unable to influence the course of these huge joint-ventures. The participation of private capital in these companies is decisive in fueling the dynamic toward autonomy.

Private capital insists that the operation be run strictly on the basis of maximum profitability, without political interference or considerations of national interest. Consequently, governments have found it very awkward to directly interfere.

It is important to realize that "chosen instruments are far from being a sure means of organizing supply security and enforcing 'national 34 interest' criteria in the consumer countries. But then, what is ?"

Well, with their eyes opened ever wider by the oil crisis, some countries recognized that one hundred percent state ownership considerably throttled the trend toward corporate independence. Britain's establishment of BNOC and France's increased reliance on the more dependable ELF-ERAP are cases -55-

in point, in what is becoming an international norm.

The oil revolution and its aftermath proved to be a traumatic period for the major industrial oil importers, not to mention the third world. Loss of employment, reduced living standard, slashed economic growth and the erosion of profits, were accompanied by a sharp increase in the rate of inflation and an even larger international payment equilibrium, which left most of these countries in intensive care.

Coupled with the disillusionment felt by many of these nations in the multinationals and chosen instruments, most governments were compelled to push further down the statist path. Joint ventures and wholly owned national petroleum corporations were an important weapon in a multifaceted effort to contain the emergency and reduce the possibility of the same thing ever reoccurring. -56-

Appendix A.

OECD Dependence on Different Types of Energy in 1973

Oil Gas Coal Other

Japan 80.7 1.5 15.4 2.4

Italy 78.6 10. 8.1 3.2

France 72.5 8.1 6.1 3.2

Netherlands 54.2 42.3 3.4 .1

West Germany 58.6 10.1 30.1 1.3

Britain 52.1 13.2 33.6 1.2

Canada 43.8 18.2 8.6 29.4

U.S. 47.3 32.9 17.8 1 .9

Source: British Petroleum Statistical Review of the World Oil Industry, 1973,

OECD Europe-Changes in Types of Energy.Consumed 1960-1970.

1960 1970

Coal 61.4 29.4

Oil 32.5 59.6

Gas 1.8 6.7

Hydro 4.2 3.3

Nuclear .1 1.0

Source:OECD;Qi1, The Present Situation and Future Prospects, , 1973, p. 265 -57-

Appendix B.

Supply of Crude by 5 US Majors (Exxon, Gulf, Mobil, Socal, Texaco)

('000 b/d)

Base Period Embargo Period Difference as Difference as Dec.72-March 73 Dec.73-March 74 % of Base Period % of fore• casted growth hleeds

Japan 1,682 1,701 +1 -11

U.S. 2,603 2,290 -12 -27

U.K. 873 927 +6 +1

France 430 467 +9 -3

W. Germany 1,021 908 -11 -18

Supply of Crude by 8 U.S. Independents (Arco, Amerada, Hess, Continental,

Getty, Marathon, Occidental, Phillips, Standard)

('000 b/d)

Base Period Embargo Period Difference as Difference as Dec.72-March 73 Dec.73-March 74 % of Base Period % of fore• casted growth needs

Japan 119 163 +37 +21

U.S. 1,269 1,097 -14 -28

U.K. 257 322 +25 +19

France 47 6 -87 -88

W. Germany 232 196 -16 -22

Note: base period .".'.of Dec-March is slightly after worst period of Oct-Dec. ••embargo- and should only be considered indicative.

Source: Federal Energy Administration (Washington, D.C. 1975) -58-

Chapter 2 Footnotes:

1. Peter Odell, Oil and World Power (Middlesex: Penguin Books, 1979) p. 12 "The companies concerned are international only in the sense that their operations are worldwide, in that they employ nationals of many countries and in that they have locally registered subsidiaries in many countries of the world. But their ownership and their ways and methods of working are limited to those of just three countries, with the USA as the dominant element"'

2. cf P. Frankel, Ibid, Mattei: Qi1 and Power Politics (London: Faber and Faber, 1966) and Horst Mendershausen, Coping with the Oil Crisis (Baltimore: John Hopkins Press, 1976) p. 29

3. Frankel, p. 39 -(

4. Michael Tanzer, The Energy Crisis (New York: Monthly Review Press, 1974) p. 85

5. Shonfield, p. 184

6. Ibid, p. 185

7. Odell, p. Ill

8. Enterprises de Recherches et d'Activites Petrolieras

9. Mendershausen, p. 29

10. Ibid, p. 25

11. Ibid, pp. 30 - 35

12. Veba is 43 percent owned by the German state and absorbed Gelsenberg, of which Bonn had bought the majority of shares.

13. Odell, p. 139

14. Ibid, pp. 139 - 141

15. Ibid, p. 143

16. Yuan-li Wu, Japan's Search for Oil (Stanford: Hoover Institute, 1977) p. 63

17. Odell, p. 139

18. Ibid, p. 146

19. D. Mackay and G. Mackay, The of North Sea Oil (London: Martin Robinson, 1975) p.2 -59-

20. International Majors Control 53% of the German market, 38% of the French, 90% of the Japanese

21. Mendershausen, p. 55

22. cf. Richard J. Barnett and Ronald E. Muller, Global Reach (N.Y.: Simon and Schuster, 1974)

23. Mendershausen, p. 63

24. Ibid, p. 49

25. See Robert B. Stobaugh, "The Oil Companies in the Crisis", Daedalus, vol. 107, no. 7 (Fall 1975)

26. Yuan-li Wu, p. 53 cites supplies diverted from Japan to the Philippines so as to obtain higher prices.

27. Robert Engler, The Brotherhood of Oil (Chicago: University of Chicago Press, 1977) p. 38

28. The Brookings Institute estimated that the oil crisis actually reduced the GNP of the major industrial powers by the following percentages:

United States 2.5% Europe 2.7% Japan 4.2% Source: E.R. Fried and CL. Schultze (eds.) Higher Oil Prices and the World Economy; The Ajustment Problem, Brookings Institute, Washington, 1975.

29. Yuan-li Wu, p. 60

30. Due to the smaller size and age of Veba-Deminex, the company has not exercised the.same degree of autonomy as CFP or BP and so far continues to act in the national interest. However, private participation in VEBA-Deminex will certainly lead to a conflict of interest.

31. Guy Arnold, Britain's Oil (London: Hamisa Hamilton, 1978) pp. 150 - 164

32. Ibid, p. 164

33. Kenneth Dam, Oil Resources: Why gets What How? (Chicago: University of Chicago Pres. 1976) p. 12

34. Mendershausen, p. 65. -60-

Chapter 3. The Public Enterprise Tradition in Canada

Someone of the stature of Clarence D. Howe, an inner Cabinet member for many years and one who was never afraid of embracing statism, perhaps symbolizes best of all Canada's march into the age of interventionism. Howe was never one to hide his views on the role of government and when he aired them he did so amongst the bourgeoisie, even if his statements did cause numerous frowns. For instance, in front of the Toronto Board of Trade in 1958 Howe argued his long-held view that:

there are certain responsibilities that cannot be directed to private enterprise and other responsibilities which no private industry is prepared to take. In these cases, government intervention is warranted.

This was more than a simple admission that private business fails and is sometimes totally out of place. While in office, and in the context of rising statism everywhere, Howe acted and pushed the door wide-open for public enterprise in Canada. From a pragmatic, last-resort response, the crown corporation became something favourably pursued by the

Canadian state. Government had become fully convinced of the value of public corporations, particularly during the depression and war. It was

Howe and his colleagues who ushered in this new period of statism, legitimate and unhindered, because they knew "a crown corporation was a good idea" - 2 it worked and worked well. -61-

As with most advanced capitalist countries, Canada has cultivated an especially long and powerful tradition of public enterprise, a practice that has become a way of life or custom of sorts, fearlessly rolled out whenever necessary. In his numerous Ministerial capacities, CD. Howe only too often realized private capital in Canada had many shortcomings and weaknesses which could not be self-corrected. For instance, Canadian capital simply ignored or avoided certain tasks, only partly developed other sectors of the economy, and left others on the verge of coil lapse.

In other words, it was left to the Canadian state to provide some of the general conditions of production or of social functioning that private entrepreneurs seemed incapable or unwilling to furnish. It follows that governments have had to bail out railways, replace feeble private airline and radio services, or engage in some helpful promotion, as was the case with Ontario Hydro. Ontario Hydro is also an example of public enterprise being used to resolve situations where the particular interests of some entrepreneur have unduly exploited capitalist business in general.

In large part then, the main historical determinant of statism in

Canada has been, in one form or another, the particular default or weaknesses of private capital. Virtually all writers on the subject concur that

"government enterprise is found where for some reason private enterprise

3 is found wanting". In part, this begins to explain the different levels of direct state intervention in Canada and the United States. Relative to

America, private capital in Canada has generally been weaker, less vigourous, and has tended to go under more often. The immediate result has been more state enterprise in compensation. -62-

Tied to the problems associated with the health of Canadian business, other factors have encouraged statism as well. Nationalism,4 two major wars, and what might best be called a favourable ideological predisposition to the state have all played some role in furthering public enterprise.

On the other hand, Canada has been unlike various European countries which have experienced mass political movements demanding nationalizations,5 had reparations dumped in the lap of the state,5 and made stronger efforts to preserve national economies from foreign penetration. Comparatively speaking, such factors have played a somewhat lesser role within Canada. Most often, the performance and not the nationality of capital has determined where statism will occur in Canada.

Perhaps the first big step toward statism was the government's construction and operation of the Intercolonial, mainly due to considerations of defense and because no private entrepreneur in his right mind would assume such a risky venture. Although business became quite keen about the subsequent Canadian railway boom, their enthusiasm was founded on state aid.'7 But if governments were prepared to grant financial assistance to the railways, then they also had

o

"to accept responsibility for them should they come to grief".

And to grief they came.

When the Canadian Northern and Grand Truck Railways tottered on the brink of financial disaster, about to drag banks, shareholders and Canada's credit rating down as well, the state rulers knew what to do. -63-

Prime Minister Borden, amidst the wreckage, concluded there was "no 9 permanent solution except some form of nationalization". Somewhat ironically for

Joe Clark, it was a Tory government, which took the"first big stride toward establishing the tradition that would subsequently spend so much of his time attacking. The takeover of the railways signifies one interventionist genre - namely bankruptcy, something the oil industry in Canada has never seen.

Of some interest is the fact that Borden was prepared to nationalize, in the face of rampant bourgeois opposition, the still viable section of the Grand Trunk, so as to obtain the preconditions for a viable state railroad.1^ If the government could ignore the demand of a very vocal part of the bourgeoisie once, then surely they could do so again.

Predictably, history repeated itself in the oil crisis fifty years later.

Another statist typology, distinct from bankruptcy or governmental efforts at promoting accumulation through public enterprise, involves the replacement of private capital in areas of the economy where it is too weak. In Canada's history this has meant the sectors where private capital has turned its back on the industry or is developing just too slowly.

Radio, TV and air transport were the clearest examples. Simply because private capital was so snail-like in establishing viable airlines and regular service,the government assumed the task. There are also numerous other examples of private capital wanting nothing to do with a certain type of business and the state having to step into the gap. The case of the wartime crown corporations is yet another example. -64-

State intervention in radio and TV had the added dimension of nationalism. Unlike the United States, where radio grew rapidly under

the auspices of large corporations, in Canada radio service developed

only sporadically during the 1930's, because the "private sector (was) unwilling to provide the required investment".11 Luredl by the gap,

American capital began to move into Canada, to the consternation for once of the government and a good part of the country. Under the

Canadian Radio League, the nearest thing to a mass movement demanding state ownership that Canada has ever seen, these fearsoof foreign penetration became the inspiration for nationalism. Consequently, as

Frank Peers, in his seminal study of the CBC concludes, it was "nationalist sentiment (which) achieved Canadian ownership and control of the nation's

12 radio and TV networks". Under Canadian conditions, with a scattered population requiring service over an immense territory and a need to foster national objectives, neither foreign nor domestic capital could fulfil both these tasks.

Outbursts of nationalistic sentiment, such as occurred with radio and TV,were rare, and with state backing even rarer. Though the state was prepared to act quite nationalistically when radio and TV were at stake, when it came to petroleum, governments turned a blind eye. The state, in fact, welcomed foreign multinationals into the oil field and for a long-time considered their performance adequate. Yet by European standards the lack of state activity was incomprehensible. The Canadian state was prepared to defend the bare essentials of the nation, such as communications, but saw no compelling reason to extend its control into foreign owned sections of the domestic economy, including petroleum. -65-

Only in the 1970's, when the strategic importance of crude oil to

Canada's future was abundantly clear and the record of the multinationals

had become tarnished, would the state intervene in the energy sector

so as to have some say in the country's destiny.

In the past and to this day, the "first and consistently most

13

important function of the state in the industrial process was promotion".

This constitutes the third genre of Canadian public enterprise; state

intervention to aid part or all of private capital in the accumulation

of capital.

Perhaps the clearest and earliest case of state promotion was the

nationalization of electricity in Ontario. Choosing to completely

substitute itself for the private electric firms, the Ontario government

gave the province's industries a major boost by socializing energy. Only

if hydro-electricity were cheap, adequate and guaranteed, could economic

growth proceed in hothouse fashion. During this period of the 20th century,

the Ontario state consciously recognized that:

power was far too precious as an agent of industrial expansion to be left under the control of ...capital. If the ordinary corporate instrument could not be relied upon to deliver this power on time at reasonable rates, than the state had a duty to step in and perform this function itself for the well-being of the economy.'4

In a set of circumstances somewhat akin to the problems associated with the oil multinationals, especially during the oil revolution many decades later, the state came directly on stage to protect the entire economy. -66-

There was no reason for the federal state sixty years later to draw

any different conclusion than Ontario did with hydro in the early 19oO's.

Except that Ontario chose to devour an entire industry - in part due to

the strong backing of the manufacturing bourgeoisie - whereas Ottawa

limited itself to Petro-Canada.

The Ontario government was prepared not only to deviate from the North American non-interventionist norm of the time, but also to challenge directly the financial interests backing the first hydro projects.

Once again, the state affronted elements of the bourgeoisie.

In this particular case of promotion, an intra-bourgeois conflict broke out over the fate pf electricity. Quite consciously, the non-financial industrial interests viewed their future as inextricable tied to hydro's 15 public ownership. Rather than becoming a pattern, however, whereby private interests recognized from early on that state enterprise is often in their material interests, the case of Ontario hydro was the exception.

Overwhelmingly, the Canadian public enterprise tradition has been one of glaring bourgeois suspicion at the best of times and more often, ardent opposition to any new dimension of statism. Only after the fact, have they grudgingly come to terms with the latest state entity. The change of heart is partly due to the fact that through the socialization of some private risk and cost, capital is strengthened and receives a boost.

There are many other state enterprises engaged in promotion but most, unlike Ontario Hydro and the British type of nationalized industry, occupy only a fraction of a particular industrial sector. -67-

Of course, direct intervention is usually not restricted to one A

genre, but is a product of a combination of factors. In petroleum and L with the establishment of Petro-Canada, the state socialized risk not I just to promote the activity of the oil industry, but to protect the rest

of capital - so dependent on oil. In addition to promotion, the state I was also intervening due to the failings of the multinational and private \ oil firms, which were made apparent by the oil crisis. Thus, the state \\ came on stage both to aid the multinationals and as a substitute that would ^

fill the. holefle'ft by these corporations in the fabric of a-national capitalism

In addition to the weaknesses of Canadian capitalism and the statist response this elicits, the pragmatic structure and successful

record of crown corporations has also reinforced the public enterprise

tradition. In fact, without such a successful record it is doubtful whether state enterprise would have been so eagerly embraced on so many occasions.

Part of the success of these crown corporations, and therefore statism, is tied to a highly functional structure - one that has evolved over a number of years into a tried and tested method. In response to widespread patronage and political interference, Ontario Hydro and the

CNR became the first prototypes of independent efficiency. The trait of an autonomous Board of Directors, as well as the practice "that such corporations must be independent and free from ... Parliamentary and

Government scrutiny and control" have both, been integral to the strength of public enterprise.16 -68-

That businessman turned state entrepreneur, CD. Howe, played

no small part in institutionalizing such successful qualities into norms.

In his mind, crown corporations were:

to be managed as efficiently, absolutely and aggressively as if he himself were the private entrepreneur at the head of it, and no nonsense about politicians meddling."

All of these became commandments written into stone. The most significant was that only the "Governor in Council may issue directives cast in broad

terms and not of application to any specific managerial decisions.

Unlike Europe, where the autonomy of certain state firms became evident during the oil crisis days, crown corporations in Canada have not

reached such a break-away point. The fact that almost every crown cor• poration in the country is one hundred percent state owned, and the relatively smaller size and correspondingly weaker sense of economic power,

19 has been enough to keep them more or less in orbit.

Not just the structure but the utility of these Canadian state firms has given the concept a good name. The success of Ontario Hydro in providing cheap, plentiful power, the CNR's ability to weld a hodge-podge of original lines into an integrated railroad, the comprehensive service of the CBC and TCA, not to mention the output of the wartime crown cor• porations, have together proven the merit of the idea. With such success, it is easy for a government to endorse yet another crown corporation, especially during the pressure of an energy crisis. -69-

Throughout the history of public enterprise in Canada "neither

nationalization nor the use of public corporations has developed as a

20

controversial issue between the two major parties." Both were

convinced of its utility. That is, until Petro-Canada came along. There has always been an implicit difference, however, between the two major

parties when it came to state enterprise. The Liberals were responsible for the majority of crown corporations and for cultivating, as J.E. Hodgetts puts it, "a marked inclination to experiment with the device of the public

21 corporation". In particular, during the CD. Howe years it was the Liberals, not the Tories, who first became fully aware of the value of crown corporations.

Convinced of the usefulness of state enterprise, they embraced direct intervention enough times to lose any initial hesitancy or fear.

In contrast to the Conservatives, whose long absence from power endeared them less to the whole statist idea, the Liberals could never turn about and consume their own state progeny. Consequently, it could be said of Canada's public enterprise tradition, that the Liberals became the truly statist Party, something the Conservatives could never claim in the same way. There is a flourishing literature which attempts to explain, in purely ideological terms, the strong statist tradition in Canada and

22 the much weaker one in the United States. Contrasting patterns of statism, many contend, are rooted in different "value systems that are

23 generally though to have prevailed in the two societies". Thus, for example, great import is given to certain philosophical traditions: -70-

at a time when American conservative intellectuals were freeing the individual for the progressive Darwinian struggle, Ca• nadian thinkers, owing more to Burke than to Darwin, insisted that the state should provide some,measure of moral direction for the society.24

It is further argued, that unlike the United States, "organic conservatism significantly blunted the Canadian liberal and profoundly modified his view of the state, Liberals saw no contradiction in defending the authority

25 of the state in the collective interest".

However, as H.V. Nelles accurately points out, such ideological

"interpretation(s)...provide only a partial explanation of the phenomenon" of statism. Any survey of the various examples of public enterprise in

Canada "ought to remind us that ideas must bear some relation to a material

27 foundation". In Canada, the material basis was the historic weakness and failings of private capital, or in other words: "state enterprise (is) ...

28 a means of bridging gaps left by private enterprise". Petro-Canada was no so much the product of some ideological predisposition to serve and protect the common good against the brutal reality of Darwinian capitalism. Rather, the corporation was a statist response to a systemic crisis; an effort to rescue capitalism in a country with a long materially based tradition of statism. -71-

Chapter 3 Footnotes:

1. Financial Post, 20 December 1958, p. 58

2. William Kilbourn and Robert Bothwell, CD. Howe: A Biography (Toronto: McClelland and Stewart, 1979) p. 181.

3. cf. C Ashley, Canadian Crown Corporations (Toronto: MacMillan Co., 1965)

4. Frank Peers, The Politics of Canadian Broadcasting 1920-1951 (Toronto: Press, 1969)

5. eg. French Popular Front and post-war period

6. eg. German Coal mines and oil concessions granted to France as reparations.

7. Privy Council Office, Crown Corporations- Direction, Control, Accountability 1977, p. 10

8. G.R. Stevens, History of the Canadian National Railway iNew York: MacMillan, 1973) p. 163

9. Ibid, p. 509

10. Ibid, p. 462

11. Privy Council Office, p. 11

12. Peers, p. 440

13. H.V. Nelles, The Politics of Development (Toronto: MacMillan 1975) p. 490

14. Ibid, p. 492

15. Ibid, pp. 215-255

16. Privy Council Office, p. 24

17. Kilbourn, p. 89

18. Privy Council Office, p. 16

19. Shonfiel.d, p. 262

20. J.E. Hodgetts, "The Public Corporation in Canada", in J.E. Hodgetts and D.C Corbett, Canadian Public Administration (Toronto: MacMillan, 1966) p. 185 -72-

21. Ibid

22. Nelles, pp. 40-42; W.L. Morton, The Canadian Identity (Toronto 1966) pp. 111-114; Gad Horowitz, "Conservatism, Liberalism and Socialism in Canada: An Interpretation." CJEPS Vo. XXXII (1966) pp. 143-171; Horowitz, 'Notes on Conservatism, Liberalism and Socialism." CJPS Vol.11;2 pp.383-399.

23. Nelles, p. 40

24. Ibid, p. 46

25. Ibid, p. 41

26. Ibid, p. 40

27. Ibid

28. Hodgetts, p. 186. -73-

Chapter 4.1 From Oil Stability to Oil Crisis

Untifl the breakdown of the post-war petroleum order, the foreign

multinationals who dominated the Canadian oil fields successfully explored,

produced and marketed sufficient crude oil for the growing needs of the

nation's economy. Petroleum flowed from the Middle East and western

Canada in a non-interrupted and plentiful manner. Private capital appa•

rently had the job so well in hand that an important condition for non•

intervention applied - governments felt they could afford to remain

disinterested, without fear of a sudden emergency developing. The state,

political parties and governments were satisfied with the situation and

seemed to be capable, unlike their European counterparts, of overlooking

the element of foreign control. Such days, however, would not last forever.

Circumstances changed when the effects of the 1973 oil embargo were felt.

Supply restrictions and price hikes upset the traditional order, jeopardizing economic growth, the country's balance of payments, employment and an already dizzying inflation rate. The oil multinationals failed to cushion the blow and actually deepened the crisis. As we shall see, they diverted supplies destined for Canada, hoarded information, suddenly'.reversed the estimates of ' decades-<6fr^^.tfc;j}Ki^^s',and launched an exploration strike. All of these problems created the fearful prospect of a growing Canadian addiction to unreliable and expensive foreign oil and forced the hand of the state.

A statist reaction did not occur before the 1970's, not only because private capital seemed adequate to the task at hand, but also because the discovery of domestic reserves in Canada after 1947 , made living with tljie foreign oil giants easier and less threatening. Furthermore a number of events failed to occur in Canada as they had in Europe, with a dampening effect on the timing of state's entry into oil. The Canadian state never -74-

received German, oil interests as war reparation, dead-ducks did not

land in the government's lap as they had during the Great Depression with

Italy's AGIP, shortages had not occurred, and lucratively inexpensive

Soviet oil, which a state firm might import to undercut the multi•

nationals, was not geographically available to Canada in the way it was

to the ENI. Thus, history and geology treated Canada quite differently

from her counterparts.

Not to be ignored in explaining the lengthy absence of a Canadian state response to the foreign domination of the oil sector, is the histo•

rically derived weakness of Canada as a nation-state. The country's enfeebled sense of itself, and the state's lack of sovereignity, relative to say France or Germany, has led to a lower level of "statehood" than elsewhere.1 Accordingly, Canada rarely embraces direct intervention for motives of prestige or national self-preservation. In addition, foreign control, in amounts far greater than anywhere in Europe, makes it very difficult for the Canadian state, which seeks to pursue the general interests of all of capital operating in the country, to act against the multinationals.

It was in the late 1960's, that the bright light of the Canadian private oil industry began to dim. In regard to vital frontier exploration, the oil firms were found dragging their feet. Compelled to step into business, so as to spur on exploration, the state socialized part of the costs of a northern drilling venture, by taking a 45 percent interest in

Pan Arctic Oils. Interestingly, state participation enabled a number of

Canadian firms, previously unprepared to go it alone, to join in the game. 2

The government may have been disappointed in the exploratory conservatism -75-

of the oil conglomerates, but the nationality of the multinationals was

still not suspect.

Though the unprecedented step of Pan Arctic Oils was a minor one,

it symbolized that something was amiss. Few in government actually

recognized the extent of the problem: Canada's entire oil regime sat

on poor foundations. The National Oil Policy, created in 1960 to allow

the importation of cheap foreign oil into a good part of Canada, balanced

precariously on foreign crude remaining inexpensive, plentiful and

unhampered. If any difficulties did arise with foreign petroleum,

Albertan oil would make little difference; without a pipeline east of

Toronto the crude was virtually useless to and the Atlantic

Provinces. Anyway, the petroleum was already committed to export south

of the border. Although the National Oil Policy may have seemed like a good

idea initially, by the end of the 1960's the traditional oil order was under

OPEC attack. Rather than providing flexibility, the government's National

Oil Policy exacerbated the effects of the oil crisis on Canada.

Moreover, each month the stakes grew larger as Canada's dependence

on oil, as the major energy source, surged ahead unabated, from lb.5% of

all energy used in 1945 to 44% in 1973. Although Canada is less dependent

on oil for her total energy needs than are other industrial nations, in terms of per capita energy consumption (including petroleum) Canada is worse

off than any other country. As if all of thiswerenot enough, the Canadian

government relied on the oil firms for information upon which policy was

then made. The data gathering section of the Energy Policy Sector could

fit into one small corner of one floor of Imperial Oil's headquarters. Yet

such dependence was not necessarily all that bad as long as the oil firms -76-

acted in an above board fashion. If, however, they lied, then the rug

might quickly disappear from under many government oil policies, and

cause Canada's internal oil regime to collapse in ruin.

To top it off, there were the huge, self-governing and autonomous

multinationals, who controlled the oil fields of and the vital

petroleum lifelines between Canada and OPEC like some fiefdom. In such

a situation of extreme dependency there lay grave possibilities. Proof enough could be seen in the simmering problems and previous conflicts

between multinationals and European nation-states, but these examples

had little impact on the consciousness of the Canadian state. As well,

the Canadian government like most countries failed to recognize all the

little signs of a major upset in the world oil order.

4.2 The rise and Impact of Economic Nationalism

The late 19601s and early 1970's were marked by an upsurge in

Canadian economic nationalism (see Appendix C), when the idea of a

National Petroleum Corporation initially came forth. The amount of foreign investment amassed over the years and the failure of the state or major political parties to respond, fueled a nationalism largely alien to the Liberal or Conservative Parties. In particular, nationalism arose amongst the new middle class and certain sectors of the working class, with the majority of these nationalists finding their way into 3 the ranks of the N.D.P. Nationalism began in the 1.950'.s

but its first organized expression was seen in the leadership of part of the

Liberal Party, as articulated by Walter Gordon during his last years -77-

in government and Cabinet. Hoping to stiffen Liberal opposition to

American capital, Walter Gordon successfully obtained Cabinet approval

for a major study on foreign investment. But in a stunning reversal he

was lucky to even get the report published. Quickly shelved by the

Party mainstream, what became known as the Watkins Report, signalled the

end of Gordon's political career as well as the temporary curtailment of

nationalism in the Liberal Party. Such action ensured that the Liberals

would not be the first to advocate a Petro-Canada.

As nationalism withered in the Liberal Party, it coalesced around

Watkins and at the N.D.P.'s 1969 convention. Although the Waffle

candidates for Party leadership were defeated at this conference, the

economic nationalism of the Waffle manifesto made a definite mark on the

N.D.P. When a more radical document than the one initially proposed by

the Party leadership was adopted by the delegates it "marked a shift to

the left in the party platform with words like 'public ownership' which were absent in the last party platform. It advocated, like the manifesto,

freedom of Canada from foreign domination". The move toward economic nationalism was also a clear effort on the part of the N.D.P. mainstream

to appeal to a changing,more nationalistic electorate. Programmatically,

the trajectory of the N.D.P. was thus set for a number of years ahead; from the soil of economic nationalism the notion of a state oil entity germinated and came to be articulated by the Parliamentary caucus of the

NDP more and more in the early 1970's.

Somewhat belatedly, the Liberals recognized that economic nationalism was not about to disappear, and so, "in response to the evident growth of public interest in the subject, the government countered... -78-

with another temporizing study of foreign ownership and control".0

Although a gesture on the part of some of the Party leadership, the

study, commissioned in 1970, also reflected the re-emergence of

nationalism within the liberal caucus. For those Liberals beginning

to be infected by the continued nationalist wave, what became known as

the Gray Report strikingly confirmed the expected - that foreign

ownership "tend(s) to reduce the abilities of national governments to

control their own economic activity.. Unabashed, Herb Gray proposed

"direct intervention on the part of government" against foreign ownership.

Part of Cabinet agreed with Gray's proposal and viewed the foreign multi•

nationals as indeed problematic. The majority, however, vehemently

disagreed and refused to make any concessions, except for a watered down

version of FIRA. All in all, the Report had little effect on government

policy. Its rejection signified that the Liberal Party opposed using

direct state intervention against a corporation or industry merely because

it was foreign. More reason than nationality had to be found, such as an

oil crisis where many of the actions of the multinationals were clearly

perceived as not in the national interest.

Unexpectedly in a minority government situation after the 1972

elections", due in part to a misjudgement of the profundity of economic nationalism, the liberals were faced with making policy concessions to

the NDP so as to stay in power.12 Yet when the NDP stepped up the call for a National Petroleum Corporation in early 1973 the Liberals refused

13

to jump. The impact of more nationalistically inclined members of the

Liberal caucus, who may have suggested a similar proposal on their own volition, remaind equally nil. -79-

Th e Liberals publicly toyed with the idea during the first nine months of 1973, more for the sake of keeping the N.D.P. at bay than

anything else, and went no further until the oil crisis.

The government even brought the state into line, forcing bureaucrats who strongly favoured a National Petroleum Corporation to relent in their

14

June 1973 working document, An Energy Policy for Canada. The purpose of

the report was to provide Canada with basic energy objectives in a world i of oil that seemed to be changing only slowly. The initial draft from the |

civil servants saw only advantages to establishing a Crown oil corporation, but it was "ordered altered by the powerful (Cabinet) committee on priorities and planning to portray a more neutral stand on major issues where 15

government policy has not yet been decided". In other words Cabinet

refused to have the bureaucrats of Energy, Mines and Resources dictate

terms - at least for the moment.

Exorbitant start-up costs, lack of exploratory acreage, potential J discouragement of foreign investment and the possibility of a state oil firm rather than government determining what was best for Canada, were hurriedly tacked on as negative points. Yet the original argument still held water; states everywhere were moving into energy, to obtain

better information for policy formation, to expand domestic research in

crude extraction, to aid regional development and to secure state to state oil

deals.16 As it turned out, significantly for the future, the Report assumed that Canada had "more than enough energy resources available to cover her 17 own use at least until the year 2050". In addition, they predicted that -80-

international oil prices would only rise to about $7.00 a barrel by 1990.

When such 'guesses' were completely disproven a few months later, the document became effectively useless and irrelevant. A National Petroleum

Corporation was now more relevant than ever.

4.3 The Storm Breaks

As the summer of 1973 wore on, tell-tale signs of a change were in the wind. Steady OPEC price hikes through the spring were something new for Canada, and they effectively destroyed the Ottawa Valley line and the

National Energy Policy. By September, when the government dropped the old

Policy, Alberta crude - in comparison to foreign - was cheaper rather than more expensive.

More ominously, in the same month OPEC threatened to use petroleum as a weapon to deflect western support from Israel. With the October War, the worst fears of the major oil importing countries were confirmed. On

October 17th OPEC announced a double blow - the imposition of an embargo and a large price hike.

Posted prices became the real trading value, while the lower market prices became meaningless: oil jumped from $3.01 to $5.12 a barrel in one \ day, with reports of some crude fetching upwards of $12.00 a barrel. In addition, OPEC slapped an oil embargo on a number of countries, which trans• lated into an immediate reduction in oil exports of 10% followed by a further

5% cut monthly.

Although Canada was not clear whether it was on the embargo list, foreign supplies would certainly tighten and the two-thirds price hike -81-

would hit home. Now, suddenly lucrative, the advantage of Western

Canadian crude was substantially reduced by the absence of an oil pipe•

line. The National Oil Policy had set an effective trap, with OPEC flow

springing the mechanism.

The problems presented by OPEC were bad enough, but the giant oil

corporations began to further exacerbate the problem . On October 24th,

Energy Minister Donald MacDonald protested thatv-.as had happened in

Europe and Japan, certain oil companies had diverted full! oil tankers en

route to Canada. The government sent a telegram to the various oil giants,

protesting: "that given the uncertainty about oil supplies to Eastern

19 r

Canada such diversions are clearly against the interests of Canadians". v

Further cases of tankers never reaching Canadian ports were reported,

but there seemed little that could be done by the Energy Minister. To add

salt to the wounds, after being asked to refrain from immediate price hikes

until a promised Cabinet decision on the matter in late October, Gulf Oil

ignored the request and increased prices to protect their profit margins.

In apparent anger and frustration MacDonald lashed out, telling the House of Commons: "this American president of that American corporation has set... 20 a good example of bad corporate citizenship". Although other multinationals complied with the governments request, the actions of Gulf Oil and the diversion of oil tankers by other companies had considerable impact on

MacDonald and was a lesson not to be soon forgotten.

Though Canada was still not on the formal embargo list, certain

Arab states started to block oil shipments to Canadian refineries and with the hardening of the OPEC position on November 3rd, whereby oil production 21 was to be cut by 25 percent, OPEC crude became even scarcer. Business -82-

began to express some concern about winter supplies, and did not forget

22 to complain about a dizzying price climb. The Financial Post, business paper par excellence, began to comment about "an increasingly serious energy 23 shortage", but offered no remedial suggestions. They had reason for concern, as the first ominous effects of the oil embargo had begun to appear in November: a 15 percent steel production cutback south of the border and an auto manufacturing slowdown across North America, blamed on more expensive gasoline, fuel oil shortages and a lack of petroleum derived synthetics.

As the shock waves of the oil revolution hit every aspect of the economy, the Financial Post predicted that'petroleum shortages 24

(would) cut into forecasts of growth and push up inflation". Not only the business press, but Ottawa and Ontario knew that the mainstays of the economy, pulp and paper, steel, chemicals, melting and cement, would be hardest hit. The Federal State was equally well aware that the oil revolution struck at the hardest imaginable moment, deepening what was already the worst depression of the post-war era. To complicate matters further for the minority Liberal government, the electorate as consumer had also been affected by events and was expected to "pay $65 million more

25 to heat (its) homes" in the 1973-74 winter alone.

On December 5th, OPEC called off the embargo, but the two month sailing time for oil tankers bringing oil from the Middle East to Canada, meant a tense supply situation continuing throughout most of the winter.

Rather than an expected improvement in the situation, the new year witnessed another stiff OPEC price hike and a foreign oil bill growing

at an alarming rate. In January 1974, OPEC began to charge $11.00 for -83-

a barrel of oil. Only six months earlier, the Canadian government had

predicted that crude prices would take till 1990 to react such a level!

To make matters worse, the Cabinet's refusal to allow the domestic price

of Albertan oil to rise to world levels, in conjunction with a federal-

provincial war over oil royalties and taxes, precipitated a major invest•

ment and exploration strike by private capital. In late spring, after a

relatively minor price hike for domestic crude in comparison to the world

price, both Alberta Premier Lougheed and Federal Finance Minister John

Turner separately made known their intentions to tax much of the increase.

Though both agreed it meant double taxation, neither government was prepared

to back down.

Soon after, the Federal government was .defeated on the budget with the tax

proposal still on the House's order of business. Yet the mere possibility

of double taxation at some later date, if the Liberals were re-elected, had a

devastating impact on the oil industry. The rest of that year and the next

proved to be the worst two years in over a decade for the drilling of

27 exploratory wells. More significantly, the same period had the poorest 28

record for oil discovery and enlargement of reserves since 1947.

Not only was there an industry wide refusal to build-up reserves, but

portions of reserves already supposedly discovered seemed to vanish into

thin air. Back in June of 1973 the National Energy Board (NEB), on the basis of information supplied by the oil firms, alleged: "there is little question 29 Canada can satisfy her own needs easily until the year 2050". Less than a year later, at NEB hearings, "all the major companies presented gloomy 3(j

projections of the country's short-term supply position". Again, based on

oil industry data, the NEB sheepishly conceded that matters had indeed -84-

darkened and reserves would probably not last past 1982!Jl Seventy years of crude simply vanished. What had happened was that Esso and family had

originally padded reserve figures to ensure NEB approval of exports to the

United States. Then, a year later, they deflated the figures in the hope of stampeding the state into raising the Canadian price of oil, since governments traditionally believed such increases stepped-up the pace of

32 exploration. Energy Minister Donald MacDonald, however, was not about 33 to give into such pressure.

Although his department had no independent means by which to confirm or deny the industry's data, the Minister refused to move western oil up to world levels. To have done contrary would have exacerbated the rate of inflation and deepened the recession. Yet if there was even a slight element of truth in the latest forecasts, and this was the real fear, then Canada would soon begin to pile up a huge balance of payments deficit for imported oil. And if there is one thing that all governments abhor, it is a debilitating balance of payments drain. So MacDonald was left with two choices, he could either increase the price of oil on the basis of unsub• stantiated estimates and blindly hope the windfall would end-up in exploration, not profits, or he could turn to another option - public enterprise.

Rather than abating, the initial oil shock had widened and deepened in 1974, exacerbating the recession, aggravating inflation, hitting industry, and making life more difficult for the consumer. What had not even been foreseen in the summer of 1973 had become a permanent crisis and constant state of emergency. Private oil firms had not saved the day and their multi• national character seemed to make matters only worse. The bottom had fallen out of perhaps the most strategic sector of the economy. Such a letdown by -85-

private business, in a situation of international petroleum instability, finally made the luxury of non-intervention too expensive. , -86-

Appendix C.

Gallup Poll Results Indicating Levels of Canadian National ism.

"Now thinking about U.S. capital in Canada- Do you think there is enough now or would you like to see more U.S. capital invested in this country?" enough more don't know 1964 46 33 21 1970 62 25 13 1975 71 16 13 1977 69 20 12 1978 69 23 9 1980 64 20 17

"Some experts are suggesting that Canada should buy back a majority control -say 51%- of U.S. companies in Canada. Even though it might mean big reductions in our standard of living, would you approve of this or not?" approve disapprove qualified don't 1970 46 32 .3 ' 19 1975 58 26 2 14 1977 41 42 2 15 1978 52 34 2 11 1980 48 34 2 16

Source: The Gallup Poll Report, Saturday, June 7, 1980

Note: Percentages may not add to exactly 100 because of rounding. -87-

Chapter 4 Footnotes:

1. Cf Resnick, p. 13

2. Canadian Pacific, Dome, Noranda

3. Cf P. Resnick, The Land of Cain (Vancouver: New Star Books, 1977) p. 170

4. Dennis Smith, Gentle Patriot (Edmonton: Hartig. 1973) p. 346

5. Ibid

6. Canada News Facts 16.31 October 1969 (Toronto)

7. Coates, p. 96

8. Smith, p. 352

9. Foreign Direct Investment in Canada (Ottawa: Info, Canada, 1972) p. 415

10. Ibid

11. Standing in the House of Commons:-

29th Parliament 30th Parliament 1972 1974. Ind. 1 Ind. 1 S.C. 15 S.C. 11 NDP 13 NDP 16 Cons 107 Cons 95 Libs 109 Libs 141

12. Canadian Development Corporation

13. Particularly during the summer of 1972 the N.D.P. began to call for a state oil corporation in the House of Commons.

14. The Department of Energy, Mines & Resources, in particular the Energy Policy Sector, was responsible for - An Energy Policy for Canada - Phase I, 2 vols (Ottawa: Info. Canada 1973)

15. Canada News Facts 25 July 1973

16. An Energy Policy for Canada, p. 18

17. Ibid, p. 104

18. Ibid -88-

19. Globe and Mail, 24 October 1973, p. 1

20. Parliament, House of Commons, Debates (2nd Session, 29th Parliament) 7452

21. Globe and Mail, 25 October 1973, p. 1; 1 November, 1973, p. 1

22. Financial Post, 10 November 1973, p. 10

23. Ibid

24. Ibid, 8 December 1973, p. 9 - This issue predicted a 4% drop in profits due entirely to the oil crisis

25. Globe and Mail, 15 November 1973, p. 1

26. In 1973 Canada paid 942 million dollars for imported crude, by 1974 the cost was 2,646 million. Though temporarily offset by revenue from Alberta crude exports to the United States, these exports were undergoing gradual reduction. See Canadian Petroleum Association, Statistical Handbook (Calgary: Canadian Petroleum Association, 1978) Section XI, Table 4. On January 1st, 1974 OPEC oil prices rose from $5.04 to $11.65 a barrel.

27. Statistical Handbook, Section I, Table 6

28. Ibid, Section II, Table 7

29. An Energy Policy for Canada, p. 104

30. Larry Pratt, The Tar Sands (Edmonton: Huntig Publishers, 1976) p. 156

31. National Energy Board, In the matter of the Exportation of Oil, Oct. 1974

32. James Laxer discusses this ruse with much clarity in Canada's Energy Crisis (Toronto: James Lewis, 1974)

33. Donald MacDonald's evidence before the Standing House of Commons Committee National Resources and Public Works May 12-15 graphically proves he held no illusions about thestatisties of the oil corporations or that price hikes would necessarily further exploration. -89-

Chapter 5.1 The Night Watchman Awakes

Throughout the fall of 1973, as the oil crisis deepened and ;

generalized, the Government Party slowly came to grips with the problem of how to respond to the emergency at hand. It was the destabilization flowing

from the oil shock, and "betrayal" attributed to the multinationals, that compelled a somewhat reluctant Prime Minister Trudeau and his more right- wing Cabinet colleagues, to consent to the idea of a National Petroleum

Corporation - a proposal vigourously demanded by thebureaucracy ,< part of Cabinet and the N.D.P. By the spring of 1974, under the continuing blows of the energy crisis and multinational blunders, any previous iberal doubts dropped by the wayside and were replaced by a solid commitment to the statist

solution. I

For several months preceding the oil embargo, pressure from within the ranks of the state, particularly Energy, Mines and Resources, had been building. Even before the June 1973 draft of An Energy policy for Canada I went to Cabinet, the Energy Policy Section of the Department favoured a 1 state oil instrument, knowing this existed elsewhere and were not the con- ceptual property of the N.D.P. \

As with his department, Energy Minister Donald MacDonald must have felt some concern during the spring and summer of 1973, about the stability of the international oil regime and capabilities of the petroleum corporations to weather the clouds on the horizon. When the storm did strike, a number of experiences, which were glaringly reconfirmed in the new year, rapidlyycon• vinced MacDonald of the necessity of direct intervention. The more he learned about the oil industry through the fall, the more adament he became about waging a fight in Cabinet for a National Petroleum Corporation. His frustration with the multinational diversion of oil tankers away from Canada, the country's -90-

complete dependence upon insecure and expensive foreign reserves, pointed

to only one solution. In the interests of oil security and,hopefully , self-

sufficiency, the state required:

A Crown owned company with authority to explore for hydro carbon deposits, to negotiate for and acquire petroleum and petroleum products from abroad to assure a continuity of supply for the needs of Canada.1

Following a quick October visit to Venezuela and a first hand look at that country's national oil firm, MacDonald returned home more convinced than ever of the concept; especially since his South American counterparts preferred to deal with a Canadian state petroleum corporation over any multinational, in future shipments of Venezuelan crude.

Concurrently, MacDonald's Department had surveyed other state oil corporations elsewhere in the world, and concluded that the quickest way of establishing a domestic National Petroleum Company would be to nationalize the Canadian operations of one of the multinationals - preferably Shell or

Gulf. Indicative of MacDonald's frame of mind during those tense days, he immediately concurred with his departmental officials.

Put before Cabinet in early November the proposal precipitated a major debate, to say the least: Liberals such, as Mitchell Sharp and 'J\

John Turner objected, viewing any such move as provocative to foreign investment and reeking of economic nationalism. "The Cabinet split into left-wing and right-wing elements", and after the dust settled the proposal had clearly been discarded as unacceptable.2 Reportedly, oil industry troubleshooters in Ottawa did some quick lobbying, which probably made the hostility of the industry crystal clear to Turner and Sharp.

MacDonald overshot his mark badly, misjudging the relationship of forces in Cabinet, and incorrectly assuming that his colleagues could be pushed into such a nationalization. A few days later, downtrodden and with not a word about his defeat, he announced to the press that the idea of establishing a Crown oil corporation from scratch was before Cabinet.4

This was all he had been able to salvage; a discussion on setting one up.

Nevertheless, weeks were to drift by without any progress or success being registered. Finally, in early December, with the continuing deterioration c of the domestic and international oil situation, and with the persistence of MacDonald, "who led a faction in Cabinet", minds finally changed and the proposal to create Petro-Canada won out.5

No doubt, the non-confidence vote slated for December 10th, courtesy of the Tories, would have surely brought the Liberal Government down without some action on energy matters. Such a deadline further spurred Trudeau and some of the more reluctant elements in Cabinet, such as Bud Drury, Mitchell

Sharp .and John Turner, who were adept at dragging their.feet-, to finally relent. The decision was, no less, a great victory for MacDonald and the

Department of Energy, Mines and Resources, who together obtained, if not exactly the nationalization they had really desired, at least the go ahead to build a Petro-Canada. On December 2th the Prime Minister rose in the

House of Commons to announce a new energy strategy, of which a Crown petroleum corporation would constitute a decisive element. -92-

"The government (is now) dancing to the tune of the N.D.P.",

lamented the petroleum industry magazine QiIweek 6 a few days later.

Similarly, but from somewhere down the other end of the political spectrum,

N.D.P. leader David Lewis believed,"on the basis of the fact that Mr. Trudeau

has accepted our program, it is a total victory for ...N.D.P. policies".7

Both these observations misunderstand and distort the actual decision;

One distortion is plain anti-statism, the other, hollow delusion. In

typical business fashion, the oil industry sought to paint Trudeau and

the Crown corporation as "socialist", while N.D.P. reformism saw visions

of socialism. Time would disprove both.

As the months ticked by it become ever clearer that the Liberals had accepted nobody's program but then.r own.- Petro-Canada was not a

socialist project foisted on the government; the corporation was the I embodiment of state capitalism. In giving the green light to Petro-Canada, | some reluctant Cabinet members had been more concerned about the immediate threat of a House defeat, but the growing menace of the oil revolution quickly captivated their full attention. MacDonald and his allies, quite autonomously of the N.D.P., appreciated the crying need for a statist

response to the new oil order, and the inability of the multinationals

to satisfactorily function in the stormy seas of the international oil market.

The decision in favour of a state oil firm had an extra bonus, which the Liberals exploited unmercifully. At the time, the Financial

Post observed "the latest energy moves suggest Trudeau is ...moving in the direction of economic nationalism". In doing so,.the Prime Minister

and much., of the Liberal leadership hoped the Petro- Canada -93-

policy decision might nicely undercut the NDP's base of support. Trudeau had finally realized in 1971 that "times have changed a bit and ...

Canadians have become a lot more nationalistic economically than they were... q

before". Subsequently, the Liberal Party moved slowly in the direction of economic nationalism, with their actions involving Home Oil, Denison' Mines,

CDC and FIRA being the major signposts.

Rather than more capitulation to the N.D.P., the Liberals success• fully used the Petro-Canada opportunity to appeal to the more nationalistic sections of the electorate. Such a strategy was nothing new for the Liberals, perhaps applied most effectively by the MacKenzie King government in 1944.

Gad Horowitz reveals the almost flawless logic of their method, when he wri tes:

as a center Party, they have allowed the CCF-N.D.P. to introduce innovations; they have waited for signs of reassurance against possible electoral reprisals, before actively proceeding to implement the innovation JO

Thus, the Petro-Canada decision was partly a tactical attempt by some Liberals to garnish electoral support for the election everyone knew was coming.

On February 27th, 1974, the Throne Speech to the 2nd Session of the

29th Parliament expressed the government's intention to set-up a National

Petroleum Corporation (Bill C-32) "to expedite the search for and development of new petroleum resources".11 Bill C-32, however, soon ended up on the, back burn• er -, as the defeat of the Liberal budget meant an election. Thus, in the months ahead, while oil prices sky-rocketed, reserves-'disappeared' and drilling rigs fled to the American border, the statist response sat on the back burner. -94-

As problems piled upon problems in the Canadian oil patch during the summer of 1974, Donald MacDonald's earlier battle to have the Liberals set up a national oil firm was vindicated. Although the federal election hardly touched on the proposal for a new crown corporation, the wisdom of the original decision was reinforced in more and more Liberal minds.

Vanishing oil reserves discredited the oil companies and revealed the impotence of the National Energy Board and government. In addition, the effort of the multinationals to hold the state to ransom by way of an exploration strike, hardened the resolve of even the most hesitant Liberal to see Petro-Canada established. Through their actions, the multinationals sealed their own fate - a future with Petro-Canada.

When Parliament was recalled in the fall, the N.D.P. had lost the balance of power to the Liberal Party. The Liberals had made an appeal to nationalistic sentiment and successfully won over part of the N.D.P.'s base.

The N.D.P. was now powerless to effectively pressure the government, yet the

Liberals were more eager than ever to re-introduce and pass the Petro-Canada legislation (now Bill C-8) as the "most important element in the government's

12 long-term planning to secure adequate supplies to meet our national needs".

Just as the N.D.P. originally mistook the Petro-Canada decision as their victory, the perseverance of the Liberals, without the N.D.P. as self- appointed watchdog, must have seemed quite baffling to David Lewis.

Confidently and forcefully the Liberals proceeded to push the Bill through

ParTtamen.t against-an. '., increasingly stubborn Tory opposition. In kicking off the debate, Liberal M.P. Maurice Foster, who was also Parliamentary

Secretary to Donald MacDonald, explained the Liberal rationale for Petro-Canada: V

-95-

private enterprise, for all its dynamism and strategic role in the Canadian economy, cannot meet all the demands imposed on it. The complexities of international trade and the gigantic appetite for energy generated by sophisticated industrial societies dictate greater supervision and control of our economies than can be achieved by a laissez-faire approach.^

In other words, state capitalism was on the march, not 'socialism' as certain N.D.P.ers might have dreamt.

The theme of a failure or letdown by private corporations, which the shrinking reserves and reduction in exploratory drilling only recon• firmed, permeated much of the Liberal argumentation. Thus, the Tory query - if the Liberal record "is so good, why have we gone from a period of (oil) surplus to a period of shortage?" merited,the;;curt retort from Ron Basford

14 - Because of free enterprise". MacDonald lambasted the multinational

"firms which have moved capital and activities (oil rigs), out of the

15 country". Particularly infuriating for him, were the corporations that were "largely foreign owned (who said) as recently as five years ago there was more than adequate (oil). The same firms are now saying, 'By God, 1 c we are not going to have enough in two years'".

He compared the post oil crisis situation of 1974, where the oil firms slackened when they should have been gearing up, to that of the north in 1967, where exploration "needs could have been met... if the industry had been prepared to move in there but they chose not to and on that basis the

Crown...put Pan Arctic together".17 Although magnified a.hundred-fold, the Petro-Canada situation was viewed as a similar case - "if all industry fails to perform and is not going to look after the needs of Canadians, then 18 clearly the government is going to move". -96-

Th e Liberals were convinced, as MacDonald defended the Bill in the

House of Commons, that:

"the best way to secure... a rate of development consistent with our national interest, a proper share of the income generated by such activity and full access to new technology, is by a direct involvement in key ventures through a (public) corporation'.'

Concretely, such a crown corporation would "act as a catalyst",

"be ready to take part in petroleum importing activities", and "bring together small Canadian companies into a larger, more competitive entity

through joint ventures".^0 Information and advice provided by Petro-

Canada to the government would assist in policy-making by enabling multi• national data to be circumvented or at least checked. This would strengthen the hand of the state. In effect, Petro-Canada would act as a "window" on the industry, thus terminating the state's night watchman role in the petro• leum sector. The helplessness felt by government and departmental officials alike would be substantially reduced.

The long Canadian tradition of crown corporations, wfith a functional structure and a clearly successful record, made the task of the Liberals that much easier. Although Petro-Canada represented a new dimension of statism, in the sense that the crown oil firm was in an area of the economy virtually uncharted by the state, the Liberals had utilized an old, but proven method. When the Liberals contemplated their assault on the formally private oil industry they turned to a crown coporation as the vehicle. The entrenched qualities of Canadian crown corporations were too -97-

successful to resist: independent, immune from political patronage and *\ required to only listen to very general directives from Cabinet, the / strength of these traditions proved too strong to modify. In their efforts / to alter one particular characteristic, the Liberals failed. /

As first proposed, the Petro-Canada Bill included the requirement » that the "corporation ... comply with any directives given it in writing

21 by the ... Minister of Energy, Mines and Resources". Such an unprece• dented break with tradition would violate the borders of the proprietary /

Schedule D concept of a crown corporation, not to mention the Financial \

Administration Act of 1951, making the enterprise look more like an agency/ 22 / of some department. The power of custom, with some help from a Tory filibuster, convinced the Liberals to mend their ways. Any bureaucratic or Liberal aspirations to exercise more departmental control over the oil j firm were thereby dashed. The offending reference was eradicated along ^ with any possibility of direct Ministerial interference, in the only 23 amendment to the Bill of any substance.

And so Petro-Canada retained the characteristics of a proprietary corporation. The Minister of Energy, Mines and Resources remained ultimately responsible for the corporation before Parliament, but he exercised no direct control over its course. Petro-Canada could raise its own funds and was expected to finance itself, although Bill C-8 enabled the state oil fi to draw upon .the federal treasury to the tune of $1.5 billion. As was custom only, Cabinet and the Energy Minister were still responsible for approving the corporation's yearly budget submitted by Petro-Canada. -98-

A1 thoughPetro-Canada had utmost priority, the debate on the Throne I

Speech, Grain Handlers Strike, certain tax-adjustment Bills and a

Christmas recess, slowed the passage of the legislation. After a further delay, due to the Tory filibuster, the Act to establish a National

Petroleum Corporation (Bill C-8) was finally passed on July 10 and received Royal Assent on July 30th, 1975.

5.2 In Whose Interests?

In the first three years of existence, Petro-Canada warranted only abuse or silence from virtually the entire bourgeoisie. The petroleum giants maintained an increasing barrage against the crown corporation, while other sectors of capital grumbled, but less noisely. Nevertheless, it would be a grove mistake to assume that the subjectively negative attitude of much of private capital means the National Petroleum Corporation is not in the best, long-term interests of business and capitalism. Unlike any individual business or member of the bourgeoisie, the overall capitalist, namely the Canadian state, recognized that something had to be done to respond to the oil crisis and the inadequacies of the oil firms. The state went ahead as it saw fit and charted a course for Canadian capitalism which included Petro-Canada.

In contrast to the consciousness of the state, which tends to pursue what it considers is in the best interests of general capital, the petroleum industry was only concerned with its" own immediate and particular prospects.

The multinationals abhorred the uncertainty surrounding a state enterprise -99-

entering their free enterprise territory. They worried that the National

Oil Firm would take away their business and end their previously unhindered ability to make decisions. Big petroleum, moreover, felt there were few material benefits they might gain from Petro-Canada. Yet after rejecting

Petro-Canada they offered no alternative remedy to alleviate the oil shock or lessen Canada's dependence on vulnerable crude supplies, except them• selves and the continuation of the already defunct status quo.

The other sectors of the bourgeoisie which opposed the state's, inter• vention into petroleum, similarly refused to advance any alternative solution to the energy crisis. The Canadian Chamber of Commerce reacted

24 unfavourably to yet more government, as did numerous Boards of Trade.

Manufacturers were completely quiescent about the corporation and said little either way. The socialization of one of their major energy inputs and the vision of securer and possibly less expensive oil seemed to ellicit little response from the majority of industrial business. Perhaps at the time they considered Petro-Canada to be an empty statist gesture without any benefit to them. They did not, however, demand a bigger or better state oil arm. In stark contrast, during the earlier effort of socializing Ontario's hydro power, manufacturers banded together to loudly articulate their desire

25 for statism. Sixty years later, the same manufacturers were either hypnotized by an ill-founded faith in the mammoth oil companies or else incapable of grasping and coherently expressing any solution - especially a state enterprise one. -100-

This is not to say that all business was cool to the idea; there were isolated advocates who would grow in number as Petro-Canada proved itself. The membership of the first Board of Directors of the state firm probably reflects some support or at least tactical agreement with the entry of the state into the oil industry. For instance, the Chairman of

Molson's, a major eastern Canadian enterprise, actually resigned from his

Board seat at Texaco to join Petro-Canada. Moreover, representation was not restricted to eastern Canada by any means. Donald Harvie, another

Board director, is "very powerful within Calgary's oil industry and a key 2fi member of the Albertan establishment". The fact that Maurice Strong would consent to be the first Chairman is also indicative of sympathy and under• standing of the corporation's purpose amongst certain mainstream elements of the bourgeoisie. Strong built the Power Corporation and has had a long history rubbing shoulders with those in power who'count-, impressive credentials to..bring to Petro-Canada 'but enough to portray him as a two-time traitor 27 in some business circles. All in all though, few businessmen recognized the potentially important role that Petro-Canada might play in the field of petroleum.

Yet irrespective of the hostility exhibited by most of capital, the state nevertheless exercised its full autonomy and proceeded with Petro-Canada

- in the long-term interests of capitalism. Many neo-Marxists would shy away from such a conclusion, since in their haste to prove all state activity corresponds directly to the immediate wishes of capital they tend to slip 28 into an overly deterministic analysis. Often, members of the bourgeoisie are in the dark when it comes to dealing with a crisis, such as the oil -101-

revolution, and only perceive the problem in terms of protecting their own immediate and specific interests, not capital generally.

Not a product of the bourgeoisie, Petro-Canada derived from an autonomous state bent on ensuring the successful continuity of the private accumulation of capital. Reg Whitaker, in his study of the Liberal Party makes an important observation in this regard:

[al]though the Liberals knew that their historical task was to save Canadian capitalism from its own excesses and its own weaknesses, there was no guarantee that the objects of these attentions would recognize who their friends were.29

This was precisely the case with the oil crisis,where the overwhelming majority of capital only saw Petro-Canada as a foe rather than friend.

After Bill C-8 received Royal Assent, the government andiithe:crown corporation spent the following months, not unsuccessfully attempting tb persuade a recalcitrant oil industry and quiescent manufacturing sector that Petro-Canada was actually to their advantage. Maurice Strong, for instance, patiently explained to the stubborn oil firms that:

we are not here to throttle and impede private industry but to add a new dimension...the exis• tence of Petro-Canada may be the best guarantee for the continued health and survival of the private industry.30

Then, just to make sure the message had sunk home he repeated that he was confident the "private companies will welcome Petro-Canada...as one -102-

of the best guarantees of their continued existence". MacDonald's successor, Allistair Gillespie, diplomatically told the Financial Post:

I believe true free enterprisers will recognize that it was Petro-Canada's par• ticipation that has helped to strengthen, not weaken private enterprise.32

To the industrial businessmen of Toronto's Empire Club, William

Hopper methodically made the case for Petro-Canada engaging in state to state oil deals. It could mean for the businesses of Ontario, oil that was less expensive and less in jeopardy than multinational crude. If industry wanted oil in the future, he pointed out, then they had to recognize that the state:

will have to offer technological and capital goods and services in return for oil. It is this array of objects which only a govern• ment can marshalV,it lies far beyond the capacity of a private oil company to master.33

In time, the multinational oil firms came to benefit from Petro-

Canada's participation through numerous joint exploration and development projects (see appendix D). The vigourous involvement of the crown corpo• ration accelerated many exploratory ventures and pushed a number of major oil projects into the serious planning stage. Without the backing of v

Petro-Canada these would probably not have become lucrative investments for the petroleum giants. Petro-Canada's share of the action meant the multinationals could nicely reduce their own exposure while participating in risky frontier exploration and heavy oil development. -103-

Since 1976 Petro-Canada has directly participated in 60 of the

114 frontier wells drilled in Canada, at a price of 246 million dollars or

12 percent of the petroleum industry's country-wide spending on exploration.

Its participation rate has been better than any other oil or gas company

operating in Canada. Petro-Canada is a major partner in the consortium

that discovered the Hibernia oil field off Newfoundland and the exploration

group that found Arctic gas at Whitefish H-63. Through all its various plays,

Petro-Canada has either brought in or participated with scores of private

oil firms: Gulf, Esso, Mobil, Aquitaine, Home Oil, Pan-Canadian Petroleum

and Texaco to name only a few. Through its 45% backing of Pan Arctic Oils

and 40% (22% indirect) in the Arctic Islands Exploration Group, Petro-Canada's

involvement has virtually kept alive northern drilling and the waning interest

of private capital in the frontier. Petro-Canada has also stimulated the massive Cities-service and Esso Alsands project, through a 9 percent slice of the action, while it has led the Arctic Liquid Natural Gas transportation consortium, which includes Alberta Gas Trunk Line Company. Finally, with Gulf,

Japan-Can,ada\Oi.Ts and other companies, Petro-Canada is pushing, the.,development

of numerous heavy.oil extraction plants.

In this way Petro-Canada acts as a catalyst and supplement in its

relationship to the oil companies, although the corporation must not be viewed as a mere watering hole for capital thirsty oil barons. James Laxer is one who persists in this over-simplification, when he sweepingly asserts:

Petro-Canada "will assume most of the risks and expense of searching for and recovering oil while the multinationals will profitably refine, distribute and

34 market". In the same vein, Larry Pratt understood the enterprise to be

"nothing more than another sectorial and capital good pool of the multinational oil industry"."*5 -104-

Of course, Petro-Canada is a sophisticated means of making public

capital available to the private oil sector. But the National Petroleum

Corporation is also part of the state's effort to look out for the general welfare of all capital , in particular, those oil dependent industrial j

sectors, such as pulp and paper, steel, chemicals and cement. The

strategic function of the crown corporation is to discover or obtain, if

at all possible, cheaper and less vulnerable supplies of petroleum for

industrial capitalism.

Consequently, in addition to stimulating the exploration and

development of crude via joint-ventures, which benefits the oil sector and

general capital alike, Petro-Canada also engages in tasks that cannot be

coined 'supplementary'. Its increasing participation in refining and

importing of oil has no catalytic role in regard to the petroleum companies

and actually cuts into their business. In state to state oil contracts, which undercut the multinationals, Petro-Canada imports 50,000 B/D from

Mexico and will soon import 100,000 B/D from Saudi Arabia. Much of this

crude will be refined at the soon to be purchased 100,000 B/D Come-by-Chance

refinery. Although Petro-Canada's imports and refinery capacity are only a

small minority of the industry total (V25), through such measures Petro-Canada

has the interests of general capital and the economy at heart. The crown

corporation also owns 370 gas outlets and 55 bulk gasoline plants, which

control 5 percent of the Canadian market. Considering all the Liberal

assurances to Parliament that Petro-Canada "will not supplant private

37

investments" and the only "intention is to supplement the capacities" of

the petroleum community, the enterprise did end up actively substituting 38 for the petroleum corporations in certain respects. -105-

The logic of Laxer and Pratt would lead one to falsely assume

that Petro-Canada is nothing more than a surrogate for the multinationals.

It also creates the false impression of the crown corporation and the state

as incapable of acting against the interests of the multinationals in

certain instances - something proven patently false by state to state oil

deals. In effect they deny the ability of the state to respond to the oil

crisis as it sees fit, even if this means stepping on the toes of the oil

multinational s.

Apart from the general accelerator effect induced by Petro-Canada

on the entire oil sector, Canadianoil firms were originally supposed to

benefit in particular from this public enterprise. However, MacDonald's

vision of a large private Canadian oil ent\ty being spawned by Petro-Canada

proved to have a hollow ring. The key mechanism by which this would be

accomplished - that is, the number of interphases between Petro-Canada and existing indigenous oil firms - has been minimal at best. In fact, they

are numerically less than the number of Petro-Canada - multinational joint

39

ventures. Given the lack of Canadian firms participating with Petro-Canada,

it seems unlikely that the state has been able to produce any special hothouse effect on these companies.

In this respect, Petro-Canada has done less than initially promised, and has failed to pursue a most favoured business strategy along the lines of Germany. Concomitant to Petro-Canada's build up, Canadian capital has been involved in an unprecedented takeover and development drive in the oil

40 industry. In only a few short years Canadian oil firms have increased their share from less than 10 percent to over 25 percent of the industry. -106-

There is little evidence to suggest, however, that Petro-Canada can claim responsibility for this boom; material state promotion to these particular firms has not been that extensive. At best, the existence of the crown corporation may have suggested to indigenous capital already interested in petroleum investment that government backing and support was a possibility, especially if difficulties arose. But on the whole, Petro-

Canada has not been in the special interests of the Canadian oil firms, more so than the rest of the oil industry. If anything, the multinationals have benefitted the most, with many more joint-ventures.

While Calgary sported bumper stickers during 1976 which read - "if you liked the Post Office you'll love Petro-Canada", the eastern provinces had a different attitude. Whereas Alberta "did not hesitate to consider that maybe the National Petroleum Corporation might someday accelerate oil exploration and development in the province, the central provinces,without crude reserves, felt an early and lasting affinity to Petro-Canada.

In particular, the government of Ontario, with a large and vulnerable industrial base, viewed Petro-Canada in a favourable light. More than any other area, Ontario could ill afford^to jeopardize its industries through fuelsshortages or price hikes, on pain of losing international competitive• ness .

Beginning in the early 19701s Ontario began to show a marked interest in the international oil cauldron and the possibly unsettling effects on

41 home industry. An early 1973 study entitled Energy in Ontario began to sound a warning, while the equivalent federal study released around the same time sat smug and remained blind. The provincial report predicted that

Ontario would not be able to seal itself of hermetically from the creeping -107-

instability of the international oil order. In particular, the oil dependency of Ontario industry was repeatedly pointed out. Rather than abating, "industry is expected to continue to account cfdr about 1/3 of

42 total energy consumption in Ontario". When placed in the context of a predicted 128 percent increase in the province's total oil consumption for the next twenty years, the absolute jump in industrial use of oil was

43 staggering. And the petroleum had to come from somewhere. Nevertheless, the report was blithelesslyignorant of the magnitude of imminent price hikes and future disappearing reserves.

When the oil crisis did hit in its full fury, it was beyond anyone's wildest dreams. An economic recession had already weakened Ontario manufacturers, and faced with yet another problem they sank deeper into the trough of depression. With industry being far from prepared to advocate and embrace s.tatism, it was left to .the Ontario government to seek some solution.

It chose to establish Ontario's own Energy Corporation.

During the same post-crisis period, Ottawa, no doubt well informed by Ontario of the province's manufacturing dilemma, went ahead with Petro-

Canada. The federal bureaucrats recognized the immediate danger to manu• facturing and the potential impact on the country's entire economic perfor• mance. Ottawa knew Ontario contributed over 40 percent of Canada's Gross

National Product and this was in jeopardy. If Ottawa's statist response to the oil crisis was to protect the general welfare of capital, then a good chunk of that capital resided precisely in Ontario's industrial belts.

Whether Ontario manufacturers were cognizant of it or not, Petro-Canada was fashioned with them in mind. -108-

The impact of the tumultous oil upheaval was as profound on

Ontario's Big Blue Machine as on the Federal Liberals. Both drew the same conclusion: statism. Ontario Energy Minister Darcy McKeough, formerly a staunch defender of free enterprise saw the light just like his federal equivalent. He made it all clear to businessmen when he told them:

the halidom days of laissez-faire ... are finished. The evidence is all around us. It may be a matter of some regret to an ?.r:' audience such as this, but I think ... that it should be recognized that this (state enter• prise) is a developing social phenomenon and not simply a product of the attitudes of so• cialist governments.44

In the face of the Ontario Tory government's support of state entry into oil, the right-ward drifting Federal Conservative Party grimaced, more resolved than ever to destroy what they believed was an anomaly on the face of free enterprise - Petro-Canada. -109-

Appendix D.

Petro-Canada Holdings as of 1979 (Brackets Designate Project Participants)

Production 1979 11.5 million cubic meters a day of gas 5% of Canadian Production 2nd in Canada for gas production 10.000 cubic meters of oil a day 5% of Canadian total 8th in Canada for oil production

Al sands Project 9% (Cities Service, Esso)

Syncrude 13%

Come-by-Chance Refinery 100,000 B/D

Heavy Oil Development Project (Gulf, Saskoil)

366 gas stations, 55 wholesale gas plants - 5% of market

Arctic Pilot Project

Polar Gas Pipeline Project

Pan Arctic Oils 45%

Arctic Islands Exploration Group 18% (22% via Pan-Arctic)

Explorations (partial list of frontier wells) off NFLD. Hibernia 25% (Chevron, Gulf, Mobil, Columbia Gas) Hekja 071 25% (Aquitaine Co., Home Oil, Pan-Canadian Petrol 4 wells (Total East Can. Exploration Ltd.) Hare Bay H-31 (British Petroleum) Blue H-28 (Texaco) off Nova Scotia Venture D-23 75% (Kaiser - now Dome Petroleum)

Source: Petro-Canada Annual Report, 1979. -110-

Chapter 5 - Footnotes:

1. Parliament, Statutes of Canada, An Act to Establish a National Petroleum Corporation, Vol. II, Ch. 61, 1974-76 s.s. 3

2. Globe and Mail, 3 November 1973, p. 1

3. Ibid

4. Ibid, 6 November 1973, p. 1

5. Ibid, 7 December.J973, p. 1

6. Qilweek, 10 December 1973, p. 5

7. David Lewis cited in Laxer, p. 88

8. Financial Post, 15 December 1973, p. 4

9. P. Trudeau's statement to Liberal Party Convention as quoted by Phil Resnick, The Land of Cain, p. 147

10. Horowitz, p. 187

11. Debates, 29th Parliament, p. 83

12. Ibid, 30th Parliament, p. 4036

13. Ibid, p. 4208

14. Ibid, p. 4225

15. Committee May 15, 1976

06, Ibid, May 13, 1976

17. Ibid

18. Ibid, May 12, 1976

19. Debates, 30th Parliament, p. 4038

20. Ibid

21. 1st draft

22. For a breakdown on rights and responsibilities of a proprietary corporation see the Financial Administration Act reproduced in Hodgetts, p. 209, 1951 -m-

23. Amended to read "...the corporation shall comply with such policy directives as may from time to time be given to it in writing by the Governor in Council!1

24. For instance, Vancouver Board of Trade and Canadian Chamber of Commerce responded quite negatively to letter sent out by EMR soliciting opinions on Bill C-8; many others failed to respond at all, such as the Toronto Board of Trade,

25. Nelles, pp. 237 - 255

26. Peter Foster, The Blue Eyed Sheiks (Toronto: Collins, 1979, p. 287)

27. For more details on Strong's corporate-state history see Financial Post, 18 October 1975, p. 27

28. Especially R. Miliband and J. O'Connor

29. Reg. Whitaker, The Government Party (Toronto: University of Toronto Press. 1977) p. 141

30. Globe and Mail, 21 June 1976, p. B7

31. Ibid

32. Financial Post, 25 November 1978, p. 7

33. Winnipeg Free Press, 22 October 1979, p. 13

34. Laxer, p. 106

35. Pratt, p. 182

36. For the extent of these industry's oil dependence, see Government of Ontario, Ministry of Treasury, Consumption of Fuel and Electricity in Ontario Manufacturing Industries, 1976

37. Debates, 30th Parliament, p. 7217

38. Commi ttee, 24 May 1975

39. For the breakdown on joint ventures see Petro-Canada Corporate Reports 1976-79

40. Financial Post, 24 May 1980 the Canadianization of the oil industry can best be seen in the takeover of foreign owned Ashland Oil, Husky and Siebens by domestic firms. Brascan, Seagrams and Westons are also repor• tedly on the prowl for a foreign oil company.

41. Report of the Advisory Committee on Energy to the Ontario Government, Energy in Ontario - the Outlook and Policy Implications, 2 vols. (Toronto: 1973) -112-

42. Ibid, p. 15

43. Ibid

44. D. McKeough, Ontario, Ministry of Energy, speech to the Financial Post International Symposium on Canada's Non-Renewable Resources, Mimeo (Toronto) 26 March 1974. -113-

Chapter 6.1 Trying to Turn the Clock Back

The halidom days of non-intervention may very well have been over yet the Tories certainly thought otherwise. Tooth and nail the Conservative

Party fought Petro-Canada as a manifestation of statism, but ultimately lost.

Not even a rise in neo-conservative ideology during the late seventies was enough to enable the Tories to roll back statism. Instead, the question of

Petro-Canada's fate played no small role in their own confusion, disintegration and electoral demise. When in office, they suffered major internal rifts, as sections of the Party recognized the necessity of a state oil corporation.

Moreover, their major ally in fighting Petro-Canada, namely the petroleum corporations, lured by the socialization of risk, turned traitor andwent over to the statist camp. Politically isolated and divided internally, the

Tories were no match against statism.

To comprehend the ill-fated Conservative endeavour to throw themselves in front of the statist onslaught, it is necessary to first glace back at the aftermath of the July 1974 federal election. Previously, they had taken no special interest or negative stance toward Petro-Canada, but with yet another trouncing at the polling booth the internal balance of power in the Party shifted, and as a result poisoned the Tory attitude toward Petro-Canada.

The frustration and shock of failing to make any major electoral headway, led to a serious challenge to the legitimacy and policies of Bob

Stanfield's center leadership. Such internal attacks were nothing new to the Tories, being a way of life or "Tory syndrome" in the phraseology of

George Perl in,* generated by centrifugal pressures stemming from the Party's lack of headway and long exile from power. Consequently, -114-

"a vocal minority in the (Tory) caucus, seeking to explain the party's lack of success under Stanfield, challenged the direction in which he had led the party, arguing that the party needed to 'return to true conservative' principles. In the spring of 1975, a caucus group calling itself the Chateau Cabinet met..."2

It was here the free enterprise attitude was grasped and first articulated, fueling so much subsequent hostility against Petro-Canada. 3 A self-perceived right-wing , made up of federal M.P.s including James

Gil lis, Harvie Andre, and Arnold Malone, managed to 4 thrust a free enterprise policy onto the Party. Part of the motivation for its adoption was that it would ensure the Tories a clear differentiation from the Liberals, especially in the post 1974 period, when Trudeau was busy applying the Tories most recent flirtation with statism: wage and price controls.

Furthermore, the Tory right was both influenced by, and hoping to electorally cash-in on an ascending neo-conservative wave. In large part a reaction or backlash against statism, neo-conservatism was the ideology of recessionary times, in which states continued to absorb more and more of the Gross National Product without assuring the traditional benefits of a stable, expanding economy. The insurgency by the right-wing also corresponded to the growing wish by the Party's rank and file for less government: in T967 61%;

1971 69%, and 1976 77% of Tory members were in favour of slashing the size

5 of the state.

Consequently, by the 30th Parliament it was no longer true that all political parties were favourably inclined toward public ownership as had once been the case. Clearly on the ascendence, Sinclair Stevens and his -115-

colleagues needed some governmental 'excess' around which to launch their anti-statist offensive. What better way they thought, without an election in sight, than to focus upon the latest example of state expansion - namely

Petro-Canada. A year earlier, in the previous Parliament, there had been no inkling that this of all issues, would become the battleground. In fact, prominent Conservative M.P.s such as Alvin Hamilton, had demanded during the 1973 energy crisis debate that Energy Minister MacDonald resign if he could not persuade Cabinet to immediately establish a National Petroleum

Corporation. Next day, 's headlines had screamed:

"Tories support N.D.P. plea for a National Petroleum Corporation".6 By mid-1974, however, such viewpoints had been silenced, and the Party caucus, carried by the right wing, expected all M.P.'s to harden around the task at hand - the assault on Bill C-8, an act to establish a state oil corporation.

And harden they did, until the realities of power in 1979 reopened the issue like some Pandora's box.

The Conservatives attacked the Bill as not only superfluous but as ideologically reprehensible, since "governments have continually and needlessly infringed on the private sector".7 In the Parliamentary debates the Tories pointedly inquired:

"is there any logic in establishing an unnecessary Crown corporation? Is there any logic in creating yet more bureaucracy? Are tax dollars so abundant that we have one billion of them to waste? I think not".8

The P.C.'s neo-conservative, laissez-faire stripes were abundantly clear as they fingered the Liberals for being myopically compulsive, because -116-

"the knee-jerk thing (to do) is to create a new agency, a new crown

Q

corporation, a new department, a new division". Quotations from the

illustrious Milton Friedmann rang through the House of Commons10, as

Sinclair Stevens attempted to explain to government that tax incentives

and a 'reliance on the private sector' were quite sufficient in solving

just about any problem imaginable.

More to the point was the fear, which in time proved to be of

some validity, that "Petro-Canada might crowd out existing activity in

the oil and gas industry"'. '\n fact, rather than being a mere possibility, substitution in certain instances became a conscious government effort, especially in terms of state-to-state oil deals.

Predictably, western Conservative M.P.'s especially those from

Alberta, were usually quite hostile to the Bill, more so than eastern

Tory members who must have silently wondered on more than one occasion whether Petro-Canada would be so totally useless in their own oil dependent

ridings. In one impassioned Tory speech to the House, the attitude of a good part of the west is perhaps most accurately summed up. The west is already "dissatisfied, and ...Petro-Canada is but another reason for being frustrated. They treat us like colonial people with our own resources... the 'good of Canada' is being interpreted by the federal government as the 12

'good of central Canada'". M.P. Arnold Malone concluded - "Petro-Canada is an imposition on the part of the central government" against the western oil producers.^

Some of the smaller oil producing provinces may have warmed-up to

the idea of acquiring further state inducement to their nascent oil -117-

insdustries , but this remains speculation since all the western provinces remained peculiarly silent about this federal appendage -

Petro-Canada. In the Ailberta government's case, however, it is not going out on a limb to surmise that Petro-Canada was not well received, and was perceived as constituting yet another federal infringement into that province's primary livelihood.

Not surprisingly, with the tension of the aborted Gulf nationaliz• ation!, multinational oil diversions ,and a bad smell from the royalty/tax battle still in the air, the petroleum industry came out fighting against the Petro-Canada scheme. They recognized that a majority Liberal government would succeed in steering Bill C-8 through Parliament, and so aimed most of their criticism at the Bill's content rather than form. The Canadian

Petroleum Association (CPA), representing the foreign-owned titans, expressed their concern about the "possibility of preferential rights, (and) preferential treatment which might be afforded Petro-Canada", thereby "di• minishing) the incentive that the private sector of the oil and gas 15 industry presently has...". In effect, their 'concern' actually signified 'restrained anger'.

In testimony before the Standing House of Commons Committee reviewing the Bill clause by clause before final reading, they homed-in on another problem: whether or not "we are really dealing with a company 1 g or if we are dealing with an extension of some federal department".

Particularly repugnant to the CPA was the possibility of corporate information, required by the Department of Energy, Mines and Resources

from oil firms, ending up in the hands of a state competitor - Petro-Canada. -118-

The 'very disturbing' clause 7, proposed for Bill C-8, enabling unprece•

dented ministerial interference in the affairs of the Crown corporation

at any time, caused further consternation and suspicion about possible

political interference.17

But it was left to J.L. Lebel, the Chairman of Chevron Standard

and CPA vice-president, to finally articulate the actual hostility to any

'window' being placed on 'their' oil patch. In very tactful populist

language he makes his point:

I will try to speak for the multinationals, by saying...there should be some question raised as to whether utilizing tax dollars in a highly risky type of business like the oil business is the proper way to spend the taxpayers' moneyJ8

'At this point in time he was stoutly opposed to the proposal, but

little did he realize that some of these tax dollars, thanks to a state oil

corporation, might some day look very nice on Chevron's profit margin. In

fact, this is exactly what transpired in the days to come, with little

protest from J.L. Lebel.

Si

Members of the Independent Petroleum Association (IPA), articulating

the interests of smaller, often Canadian oil firms to the Standing Committee, 19 were similarly "not convinced at all that a Crown corporation (was) necessary".

In other words, even those who were supposed to benefit the most from the Bill had

little use for the concept.

In a moment of despair stemming from the fact that the government mistrusted the petroleum industries so much that it intended to send a state -119-

firm into its domain, the president of the CPA, John Poyen, incredulously demanded of the Liberals:

What has private enterprise done which is not in the best interest of Canada and what can Petro-Canada do which will provide something the private sector has not done? I think the track record of the private enterprise sector ... has been outstanding to this point. All of a sudden we have come to an international crisis ... and that has triggered the (present) situation.20

He just could not comprehend how the capitalist state could come to

a conclusion which he opposed. Petroleum opposition or not, the state was

unalterably convinced that private enterprise functioned neither adequately nor properly - and that was that.

To make the best of what initially appeared as a bad situation, oil

industry executives hoped Petro-Canada would at least "be a supplement or

21

an additive ... not ... a substitute". In retrospect, they had only

partial success, but the supplements were more lucrative than ever imagined..

More success was registered in aid given to Tory efforts to amend the offensive

#7(2) clause, thereby relaxing the ministerial grip on Petro-Canada.

Once Petro-Canada began operations in early 1976, opposition to the

proposal turned to outright antagonism. Certainly with an ear on the action,

that summer the Financial Post observed:

Petro-Canada has not been welcomed in the Canadian oil patch, not even by the independents to whose rescue from the evil mechanisms of the big boys it has supposedly come.22 -120-

Portraying and believing themselves to be a faithful servant of so many years, the industry felt indignant that the government would unleash a watchdog into their midst. When Atlantic Richfield Co. was consumed by

Petro-Canada in August of that year, it only made the private oil firms more virulent enemies of the state oil firm.

In a retaliatory frame of mind, the Calgary oil community dubbed

the headquarters of the crown corporation 'Red Square' and the CPA refused

Petro-Canada membership. In seeming frustration with the entire situation

of trench warfare, Petro-Canada's chairman denounced the multinationals

23

for waging "an unrelenting underground campaign against Petro-Canada".

Maurice Strong made the speech before the Canadian Club in Toronto, perhaps

hoping that eastern business, so petroleum dependent, might come to his

defense in the board rooms of the country, by pressuring the oil corporations

to lay-off.

The struggle continued and swung to the crown corporation's preferential

right to obtain exploration tracts, never deleted from Bill C-8 as requested by

the CPA, which the giants vehemently challenged in public. Nevertheless the government stood firm and Petro-Canada continued to receive first choice on

acreage turned back by industry and 25 percent of all permit renewals, without having to pay a cent for the results of any exploration work previously done by pri vate capi tal.

For a few short weeks, the industry was able to chuckle amongst them• selves as Petro-Canada badly fumbled an attempted takeover of Husky Oil. Yet a year later everyone's laughing stock suddenly made it to the big league, when in the largest corporate takeover in Canadian history, Petro-Canada devoured Pacific Petroleum for 1.5 billion dollars. Significantly enough, -121-

a banking consortium led by The Royal Bank, Canadian Imperial Bank of

Commerce and Bank of Nova Scotia, put up the money. Obviously, for the

financial community considerations of state guaranteed loans and interest

took clear precedence over any ideological anxiety about statism.

The purchase translated into crucial leverage and funding for Petro-

Canada, in heavy oils, frontier reserves, the tar sands and with an essential

cash flow to boot. The logic behind the takeover, was not reflected in a

Financial Post editorial which questioned, as did many, the usefulness of 24 such an enormously costly deal. Going even further, the Petroleum

Associations considered that:

the purchase of Pacific Petroleum didn't add one barrel of oil or MCF of gas to Canada's reserves, and it may have hurt a fine company.25

The President of Gulf Oil, already with an axe to grind against a

government that had actually discussed nationalizing his corporation out

from under him, joined the fray, condemning Petro-Canada as a spoilt child, because "we haven't had the same advantages, have we?" Even in the context of successful joint ventures, such as two gas finds in 1979, tension boiled over:

private industry's nose was put out of joint because ... Hopper indicated that without

Petro-Canada's involvement there was no 27 guarantee either well would have been drilled.

By 1979, after barging its way into the oil industry through takeovers and an aggressive exploration program, Petro-Canada had developed such a -122-

sizeable presence and so intermeshed itself in joint ventures with private capital, that a begrudging respect finally began to replace antagonism.

Basically, the state enterprise had proved itself; it made ventures take off and profits fly. The Chairman of the Crown corporation paints a most accurate picture of this seemingly strange conciliation between the state and the oil corporations: "they don't care for us. But I think the majority feel that Petro-Canada is a healthy presence in the country. When it comes

28 down to bucks there is no ideology". No doubt, Esso and friends still wanted Petro-Canada out of marketing and shipping (substitution for private capital), in addition to forfeiting preferential acreage rights, but the socialization of some of the risk of many ventures and vital projects by the crown corporation, looked very favourable indeed. The bitterness wore off as the state increased supplements to the oil corporations.

With the Conservatives moving towards apparent political victory in early 1979, it suddenly dawned on the petroleum executives that the lucrative

Petro-Canada additive might very well be ended by the spectre of Tory neo- conservatism. Half the frontier exploratory wells, the Arctic Pilot Gas

Project, heavy oil development and the Alsands project might all be thrown into jeopardy if Petro-Canada was substantially reduced. Words of praise began to be heard for the National Petroleum Corporation, emanating from an oil industry now hoping to stop the Conservative promise to fully disband

Petro-Canada.

At the 1976 leadership convention, Joe Clark had been elected to lead the Tories, in a Party where the lines were already clearly drawn - namely 29 against Petro-Canada. Although considered a red Tory' by many , on -123-

assuming leadership he effectively became a "prisoner of the slogans and

30 ideals of a Party whose right-wing (was) on the ascendency". Although this assessment may be somewhat overdone, Clarky clearly had to appease the right-wing and had little room to manoeuvre. This was a right-wing we might note, so fraught with personal rivalries, among Sinclair Stevens,

Paul Hellyer, Claude Wagner and others, that capturing the leadership position of the Party remained impossible.

Realizing the need to appease the right at the convention, Clark had promised a "reassessment of crown corporations, and abolition of 31

those no longer needed". Not that he had much choice, given, that the Party's

anti-statist attack had already been set and carried out against Petro-Canada.

Besides, in an internal regime just as "fractious and undisciplined as at

any time in the past", Clark could ill afford to drop the anti-statist • 32 banner, except on pain of political suicide. He was "looked upon with

suspicion and distrust by a very vocal, and very powerful section of the

33

Party". Even the graphic example of the Exxon diversion of oil, otherwise

destined for Eastern Canada in early 1979, and Esso's rejection of the Liberal

request to bypass their New York parent in the future, failed to dent the free

enterprise stance of the right-wing or jar Joe Clark.

To pursue a laissez-faire course, however, meant placing the Tories

squarely up against the historic dynamic of statism. Clark's other choice,

to combat the right-wing in the Party and draw back from the precipice of

anti-statism, was not a viable alternative given the internal relationship

of forces. Thus he really had little chance either way. As it turned out,

he exposed the Conservatives to the full fury of statism and thereby took

the Conservative Party to the wall. -124-

6.2 Isolation and Disintegration

From the moment of their electoral victory in 1979 the Conservative leadership erred, incorrectly believing that support for neo-conservatism had been the reason for success, rather than a mere protest vote against the Liberals. The more convinced they became of this false view and of the poignancy of anti-statism, the more their support seemed to wane once they had formed the new government. Increasingly isolated as a result, most of the public, newspapers, provinces, business organizations and even oil companies called for a halt to the Tories privatization scheme.

A few months after the election, not only did the people in the street clearly favour Petro-Canada 2-1, but even a vast majority of those who had voted Tory opposed any dismantling of the corporation."^ In October, another poll indicated still further support, from every part of the country, with 75% of those asked approving Petro-Hanada1s exploration activity (7% against) and 57% supporting state to state oil deals conducted via the National Petroleum Corporation (20% against). Petro-Canada had already been successfully sold to the general population.

Some conservative newpapers could not stomach, let alone publicly defend, the sordid Tory death sentence, and so stood back and remained silent. The rest of the press, including those Tory papers brave enough to speak up, choose'to-verbally disagree. The editors of the prestigous

Financial Post, although concerned about Petro-Canada's enormous appetite and preferential treatment, recognized that the enterprise

"seems to be doing valuable exploration work...and...may be a useful agent in state-to-state negotiations to secure foreign oil". In numerous -125-

editorials, the Globe and Mail ripped into Clark's anti-statist stance,

"as irresponsible and ridiculous, especially since no one wants it 37 abolished. Not even, apparently, the oil companies..."

When Petro-Canada was first established, the oil companies had taken quite awhile to recognize and appreciate the corporation's supple• ments, but with the Tory victory they quickly foresaw that the free-ride was endangered. Many petroleum executives had grown used to Petro-Canada's supplements and now feared the laissez-faire enthusiasts who might take back the good parts of what the Liberals had given, as well as the bad.

They still disliked Petro-Canada's efforts at substitution, especially in terms of state-to-state oil controls and sought to end these, but the benefits derived from socialized costs were very lucrative indeed.

Jack Armstrong, the highly opinionated chief of Imperial Oil, betrayed his predecessor and blessed Petro-Canada, since the crown corporation would 38 satisfy what he called "man on the street feelings". He cloaked his own material self-interest - that is, socialized promotion - behind popular

images. In fact, if it had not been for Petro-Canada these 'men on the street1 might very well have turned against Armstrong and demanded the

takeover of his Imperial Oil. Years before, Maurice Strong had realized with much foresight that Petro-Canada "relieves the pressure for the 39

nationalization of the whole industry". Others in the oil industry

besides Imperial Oil made themselves heard as well, suggesting the Tories

be wary, since dismantling the corporation might jeopardize and set back

multiple joint ventures such as half the wells being drilled in Canada's

frontier for years.40 -126-

Responding to changes in the wishes of his members, Hal Wyatt,

President of the Canadian Chamber of Commerce, and the "leading spokesman

for private enterprise in Canada", reversed the Chamber's originally

belligerent stance toward Petro-Canada, admitting "there are situations where

41

government and business can work together. The mid to large corporations

that dominated the Chamber finally considered Petro-Canada to be one of

these occasions. The oil crisis, after-shock and Petro-Canada's track

record favourably affected manufacturing views of a state petroleum firm.

Predictably, the Conservative Government in Ontario, which viewed

the province's industrial-based future as inextricably tied to energy

security, forcibly argued for the continuation of Petro-Canada "with suffi•

cient financial resources and authority to undertake a leadership and 42 innovative role in the industry". William Davis, to the consternation of the Federal Tories, was even prepared to buy part of the crown corporation,

43 "if the federal government will agree to keep it in public hands".

Saskatchewan and the Atlantic provinces also added their voices to the

44

chorus of ayes. Meanwhile the Liberals and the N.D.P. bided their time

during the fall of 1979, toying with the government in a couple of non-

confidence votes on Petro-Canada, waiting for the Tories to hang themselves. 45

Not only was much of Canadian society up in arms, but

cracks began to appear in the Tory homefront as well, ultimately paralyzing

the government. With apparent misgivings about campaign promises made while out of power and unaware of the exigencies of government, especially

in terms of obtaining future oil security, parts of Cabinet and caucus began

questioning anti-statism soon after winning the election. -127-

.For some Tory MP's, now that the Party made up the government,

the practicalities of running a statist society must have.made neo-

"jjconservatism seem more like .an impractical yearning .or electibn

gimmick than a realistic policy. The Tory right-wing, however, disagreed

completely with any such evaluation. Once again, with contending internal

viewpoints, the habitual Tory syndrome of debilitating internal struggle

reappeared. Consequently, contradictory actions and embarrassing statements

in regard to Petro-Canada came from different wings of what could be called

a 'government' in only;1'the broadest sense of the term.46

In June, the new Conservative Energy Minister, Roy Hnatyshyn had

begun to warm-up to Petro-Canada in public. His ties to Energy, Mines and

Resources made him more aware than any other Tory of the inadequacies of

private enterprise, in terms of slow project development, Tagging exploration

and supply diversions. The Minister was also well aware that many projects

would be endangered if the corporation were privatized. He hoped that

Petro-Canada would still be allowed to pursue a long^planned Mexican and

Venezuelan oil import deal, scheduled to be negotiated and signed that month,

The majority of Cabinet, however, would have no such thing,

Dominated by the likes of Treasury Board Chairman Sinclair Stevens,

Cabinet was more concerned about abstract neo-conservative principles and

visions of rolling back the state, than attempting to run an 'Energy

Department quite fearful of the future of petroleum supplies in an advanced

capitalist economy. The government consequently suggested to both Mexico

and Venezuela that Petro-Canada be dropped as the Canadian agent and replaced

by some multinational.47 Since each of these oil exporting nations had

explicitly stated their preference for Petro-Canada, such action jeopardized -128-

existing deals and raised many a skeptical eyebrow across Canada.

To further compound a clearly questionable move, the decision was widely perceived as partisan. For some time Imperial Qi1 had been pushing

Ottawa to "eliminate Petro-Canada as the middleman and to let private oil

48 companies make all the necessary arrangements". Though Imperial's attitude toward the: state oil firm had become more favourable, they still sought to preserve their control over the lucrative supply routes, and had fearfully looked on when the former Liberal government had gone about grooming Petro-

Canada as a supplier of foreign oil to Canada. The existence of a number of

'former' Imperial employees in the new Tory government tainted the decision

49 even more so.

A month later, Hnatyshyn reopened what Sinclair Stevens and much of

Cabinet thought was a closed book, claiming to the press that it was "incorrect 50 to say Petro-Canada has been dropped from international oil transactions".

A few days later, the Energy Minister went a step further, alleging that

"Petro-Canada will not be split up and sold off to private interests. To 51 suggest our policy is to sell Petro-Canada misses the whole point".

Circumstances had certainly changed for Hnatyshyn and he said so; his department and short term in office had destroyed any anti-statist ardour he might have once possessed or articulated.

The cat was out of the bag and the press was not prepared to listen to Clark's denial of a Cabinet rift over the future of the state oil firm.

As far as the Prime Minister was concerned "there had been no shift in policy 52 toward Petro-Canada". In actual fact, Clark was deluded, there was no coherent 'policy' at all, only an abstract election promise. No one, least of all the Tory leader, had any clue how to dismantle Petro-Canada - let alone -129-

how to do so without bringing down most of the newer petroleum projects in the process. In the vacuum, Hnatyshyn had forged ahead with the perspective of Petro-Canada remaining in the picture as a state oil arm, while Joe Clark, tied to the policy of dissolution so stubbornly advocated by his right-wing, drifted toward disaster.

To temporarily buy time and diffuse a volatile situation, the Tory leader succeeded in temporarily silencing Hnatyshyn and the rest of Cabinet, publicly at least, and appointed a classic advisory committee in early

September to consider the corporation's fate. Four businessmen were chosen

53 for the task , but the committee's terms of reference were already largely pre-determined,-to ensure that Petro-Canada's status would change^ by a turbulent Cabinet meeting in which Hnatyshyn had been defeated.

The committee's subsequent report, leaked to the NDP on October 15, 1979, recommended that a good part of Petro-Canada be privatized, through a free share giveaway to the public along the lines of BCRIC. That is, the government would assume Petro-Canada's debt of 850 million dollars in a new oil agency, while the profitable parts, such as the gas stations and productive wells, would go to the public. The government agency would also assume most of

Petro-Canada's participation in high-risk ventures, such as the Polar Gas project and PanArctic oils. Thus, a largely privatized Petro-Canada, including the temporary 25 percent state participation suggested by the committee, would be without high risk exposure; it would simply be a highly profitable enter• prise.

Predictably, Hnatyshyn and his department objected to any scheme whereby Petro-Canada's participation in the crucial risk-ventures having to do -130-

with exploration and development would end. Moreover, the proposed oil agency would be saddled under such a burden of debt as to be virtually useless. Deprived of the vital cash flow from Petro-Canada's more profitable operations, the agency would be impotent, without the initiative or ability to stimulate any project. The entire rationale for government participation in the oil sector would thus end.

Throughout the fall the government continued to bicker with itself, unable to break the dead-lock on Petro-Canada, due as much to the unclarity of the Stevens clique on how to proceed as Hnatyshyn's dogged defence. A sign of the times, and probably quite disconcerting to the staunch Tory neo-conservatives, "oil industry executives (were) beginning to complain ... about Petro-Canada's fast fading ability to participate in major energy

54 projects".

Perhaps the best explanation of why so much of the Tory Party harboured an almost iconoclastic attitude to the crown corporation, "in spite of protests from the opposition parties, the public and even some of the oil 55 industry - (was that) it became a symbol". After the abandonment of so many election promises, Petro-Canada was the one policy they would somehow keep.

As a Globe and Mail editorial correctly pointed out, on the Corporation's 56

"demise rests some of the Conservatives precious credibility". In addition, the National Petroleum Corporation was an old sore point, a lost battle with wider doctrinaire implications just waiting to be settled correctly.

Those Tories who questioned such vengeful motives might protest, but

the legacy of the past was certainly too entrenched and powerful to be broken.

The oil industry learned to adapt to and even enjoy statism in its own back -131-

yard, but the Tory right-wing myopically stuck to their guns. Bent on

'finishing the job1 and maintaining their credibility, they appeared more and more as hard headed fools out to undermine a crown corporation with valid purpose and widespread support. Thus, the predictable occurred, the Tories isolated themselves politically and grew more internally fragmented, to the point of paralysis. Neo-conservatism proved to be the noose with which they successfully hung themselves. -132-

Chapter 6 - Footnotes

1. George Perlin, The Tory Syndrome (: McGiII-Queen's University Press, 1980)

2. Ibid, p. 173, However,' Stanfield did call a formal end to this shadow caucus.

3. Ibid, p. 189, Perlin confirms that definitions of 'right and left' wings are widely used in the Party.

4. Stanfield had introduced small bits of a program intended to bring the state to heel. See Financial Post 28 June 1974 for Stanfield's election platform.

5. Perlin, p. 183

6. Globe and Mail, 6 November 1973, p. 1

7. Debates, 30th Parliament, p. 4251 , Sinclair Stevens

8. Ibid, p. 4570, Peter Elzinga

9. Committee, 22 May 1975

10. Debates, 30th Parliament, p. 7254, Sinclair Stevens

11. Committee, 22 May 1975, Harvie Andre

12. Debates, 30th Parliament, p. 7466 Arnold Mai one

13. Ibid

14. At most, Alan Blakeney, Premier of Saskatchewan, favoured Petro-Canada in the Husky takeover fiasco. He believed it would get heavy oil development underway. See Winnipeg Free Press, 24 June 1978, p. 18

15. Committee, 30 April 1975

16. Ibid

17. Ibid

18. Ibid

19. Ibid

20. Ibid

21. Ibid -133-

22. Financial Post, 12 June 1976, p. 11

23. Globe and Mail, 19 April 1977, p. Bl

24. Financial Post, 18 November 1978, p. 4; editorial

25. J. Porter of Independent Petroleum Association as cited in R. Bott, "The Perils of Petro-Canada", Canadian Business Magazine 52' June 1979, p. 88-89

26. Financial Post, 9 December 1978, p. 5

27. Ibid, 26 May 1979, p. 1, 19

28. W. Hopper (interview) as cited in Financial Post, 9 December 1975, p. 5

29. Perlin, p. 179 "has shown that for a large proportion of the party member• ship, ideological symbols have limited and varying issue content. Yet, they are used..." Thus, "J. Clark... had the support of the Party's 'left'... while Wagner had the support of its right", p. 173

30. Rae Murphy "Clark - Prisoner of the Right?", Last Past, August 1979, p. 6

31. Time Magazine, 1 March 1976, p. 3

32. Perlin, p. 187

33. Murphy, p. 4-5

34. Gallup Poll, 11 August 1979 indicated 48% in favour and 22% opposed to Petro-Canada, with 43% of those previous Tory voters in favour of retaining the crown corporation, while 28% were against.

35. Gallup Poll, 11 October 1979

36. Financial Post, 1 September 1979, p. 6

37. Globe and Mail, 7 September,1979, p. 6; see also 30 July, p. 6, 3 September, p. 6, 21 September p. 6, 10 October p. 6

38. Ibid, 1 September 1979, p. B14

39. Ibid, 21 June 1976, p. B7

40. Calgary Herald, 2 June 1979, p. A13

41. Ibid, 26 September 1979, p. CIO

42. Province of Ontario, Ministry of Treasury, Background Papers, November 1977, p. 4 -134-

43. Globe and Mail, 31 August 1979, p. 1, 8

44. Ibid, 1 September 1979, B 14

45. One notable exception was Premier Lyon of Manitoba who spoke against Petro-Canada's continued existence; see Winnipeg Free Press, 1 September 1979, p. 3

46. Globe and Mail, 18 June 1979, p. Bl

47. Ibid, 27 July 1979, p. 30

48. Ibid, p. 8

49. Financial Post, 26 January 1980, p. 6 mentions various ones, including Paul Currey - Tory National Campaign Director

50. Globe and Mail, 2 August 1979, p. 8

51. Ibid, 11 August 1979, p. 1

52. Ibid, 13 August 1979, p. 1

53. D. McDougall, former head of Labatts; R. Giroux, former President of Quebec Hydro; S.K. Lanoff, former head of Voyageur Petroleum Ltd.; and R. Sykes of a Halifax Accounting firm.

54. Vancouver Sun, 2 November 1979, p. A8

55. Globe and Mail, 20 October 1979, p. 1, 3

56. Ibid, -135-

Chapter 7 The Triumph of the Positive State

Petro-Canada did more than simply survive the Tory siege. The crown corporation came out of its defensive positions more steeled and ready than ever before. With neo-conservatism defeated in a lightening fall campaign,

Petro-Canada was left triumphantly alone. The Liberal victory was Petro-

Canada 's as well.

Unleashed and with a clear mandate, the corporation has again begun to beat the statist drum. More and more convinced of the utility of the state corporation in the petroleum jungle, the Liberals have given Petro-Canada a green light to go on the acquisition trail, with Trudeau promising Treasury funds to boot.1 Canadian operations of one of British Petroleum, Shell or

Petrofina may well be the next likely victim. Apparently, the insatiable appetite of the state oil firm has only just begun to be filled.

Throughout the course of this analysis the discussion had endeavoured to point out that the creation and triumph of Petro-Canada was part and parcel of a generalized statist dynamic. In fact, state capitalism has built up such momentum that the Tories simply met their match. Governments have engaged in direct intervention for a host of reasons, yet more often than not inter- ventionism has been due to problems or weaknesses associated with private capital.

Usually, state enterprise exists to bail out businesses, aid capital accumulation or fulfill some function which private enterprise is incapable of providing on a satisfactory basis.

To an ever increasing degree with petroleum, particularly in the advanced capitalist nations, more and larger National Petroleum Corporations are becoming a way of life. As we have seen, most states grew disillusioned with -136-

the oil industry and its inability to provide cheap and adequate petroleum, particularly with the coming of the new energy order. In addition, western countries were highly dependent on sources of foreign crude which were becoming less and less reliable. Continuing to rely on the private sector in such a situation was increasingly considered by most countries to be a poor strategy.

Consequently, the state has come on stage to a greater and greater degree. This is equally true of Canada, where Petro-Canada became an instrument to prod the oil multinationals into better performance, and a means to obtain, discover and develop petroleum reserves for the innumerable capitalist enterprises that depend on this energy form. The National Petroleum

Corporation is the embodiment of everything that is state capitalism.

This conclusion, however, is not widely held. Part of the reason it is not lies in certain common misconceptions about the state and thus Petro-

Canada. The N.D.P. for instance, subscribes to a particular view of the state which mars its image of Petro-Canada. To some extent many neo-Marxists also fall into a trap. Social-democracy basically articulates a pluralist conception of the state, while many neo-Marxists lean toward a perspective which overly portrays the state as an adjunct of the bourgeoisie. In the logic of the N.D.P., direct intervention is instituted by a state not defined in relation to the means of production or in terms of class society. To the more deterministic of neo-Marxists, direct intervention must be something the bourgeoisie first cooks up and then foists on government. The newest dimension of state intervention, however, has disproven both of these contentions. Petro-Canada was the offspring of an autonomous state. It lacked favourable bourgeois support, but was a capitalist state nevertheless, -137-

bent on the successful reproduction of capital. In some respects it acted

against the immediate interests of the oil giants, but judged this necessary

to preserve the integrity of capitalism.

The bourgeoisie, on the other hand, were not so concerned about the

long-term future of capital as they were with their immediate and particular

prospects under Petro-Canada. Due to a feeling of uncertainty and a fear

of state substitution, the oil companies rejected Petro-Canada. However,

once concrete material benefits began to flow from the National Oil Corporation,

into the coffers of the petroleum companies, they changed their tune and warmed

up to Petro-Canada's hospitality. It is not true that an implicit compromise

emerged since 1975, whereby Petro-Canada accepted a largely supplementary role

and the oil industry consequently supported its continued existence. If anything,

the National Petroleum Corporation is moving more and more in the direction of

substitution, which the oil firms oppose. Nevertheless, the petroleum sector

continues to support Petro-Canada,'s supplementary role in spite of ever higher

substitution. In fact, industry support became so sympathetic that they even

betrayed their former Tory allies.

No doubt, the neo-conservative Tory Party could arise again, but another

assault on Petro-Canada seems unlikely. Badly routed and internally wracked

the first time around, the Tories will think twice before repeating history.

That is, if the opportunity even presents itself again, which is unlikely for quite a while given the Tory's previous track record.

Instead of the neo-conservatives defeating statism, the reverse happened; under the grinding pressure of statism the Conservative ship literally

came apart at the seams. If nothing else, the Tory's futile effort and -138-

di si integration did indicate the depths of Petro-Canada's roots. Against the state oil firm, anchored on the bedrock of statism and supported by

Liberals, the N.D.P., functionaries, major provinces, social formations and an interventionist tradition, the Conservatives stumbled and fell.

Today, Petro-Canada is so intermeshed with the private sector in frontier drilling and various development projects that talk of dismantling the corporation is increasingly unrealistic.

Yet with its existing 5% share of Canadian petroleum and gas pro• duction, and 12% of exploration, Petro-Canada can, in all honesty, only have a limited impact on the country's overall petroleum future. The fact that a handful of private oil multinationals still control most of the oil reserves, supply routes and marketing networks continues to present problems.

It means that the state oil firm is often ineffectual and still frustrated by an industry which largely continues to be in the hands of private decision-makers. Predictably, the state is now seeking to expand Petro-Canada to make it ever more effective. If previous crown corporations are anything to go by, Petro-Canada could someday sit on half the domestic oil patch and be responsible for importing the lion's share of offshore crude.

This investigation of Petro-Canada has confirmed the initial theoretical argument that statism, through the use of government enterprise and direct intervention, serves to prop up and aid capitalism. This is especially true for the oil dependent private capital of the modern age. The case of Petro-

Canada also substantiates the theory of an autonomous state. The state acted alone, but it embraced statism in the long-term interests of capitalism and will continue to do so. State capitalism knows no bounds. -139-

Chapter 7 Footnotes:

1. Financial Post, 24 May 1980. -140-

Selected Bibliography

Statism and Public Enterprise:

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Sheahan, John. Promotion and Control of Industry in Post-War France. Cambridge: Harvard University Press, 1963.

Shonfield, Andrew. Modern Capitalism; The Changing Balance of Public and Private Power. New York: Oxford University Press, 1969. -i4i-

International Oil:

Arnold, Guy. Britain's Oil. London: Hamish Hamilton, 1978.

Dam, Kenneth. Oil Resources: Who gets what how? Chicago: University of Chicago Press, 1976.

Engler, Robert. The Brotherhood of Oil: Energy Policy and the Public Interest. Chicago: University of Chicago Press, 1977.

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Pratt, Larry. The Tar Sands- Syncrude and the Politics of Oil. Edmonton Hurtig Publishers, 1976. -142-

Crown Corporations and Nationalism!

Ashley, C.A. Canadian Crown Corporations. Toronto: MacMillan, 1965.

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Government Documents, Canada:

Department of Energy, Mines and Resources. Task Force on Petro-Canada, Report. Ottawa, 1977.

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Montreal Star. May, September 1978; August 1979.

Winnipeg Free Press. June, August-December 1978; January - December 1979.

Globe and Mail. 1973-1980.

Calgary Herald. November 1978; April, August, September 1979.

Financial Post. 1973-1980. '

Toronto Star. August - September 1979.

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Oilweek. 1973, 1976, 1979.

Murphy, Rae. "Clark-Prisoner of the Right?" Last Post, August 1979, pp. 4-6.

Horowitz, Gad. "Conservatism, Liberalism and Socialism in Canada: An Interpretation." Canadian Journal of Economics and Political Science. XXXII No. 2. May, 1966, pp. 143-166. -144-

Bott, R. "The Perils of Petro-Canada". Canadian Business Magazine, June 1979, pp. 88-90.

Stabaugh, Robert B. "The Oil Companies in the Crisis". Daedalus, Vo. 104, No. 4, Fall 1975.