Liberalism as an idea has long run up against established interests. Its great strength is that it has been able either to thwart or win them over with the promise of economic dynamism - that the power of freed markets would generate such wealth as to overcome any inconvenience caused by the somewhat tumultuous liberal way of doing things. And in this theory liberalism will natural reward virtue on an individual and national level - those who work hard, make careful investments, and apply themselves are able to earn a living beyond the aspirations of individuals in a feudal society, and nations who make it possible to do so, and provide sought after individual liberties, are rewarded by greater productivity and immigrants to increase their fortune further.
Much of this system breaks down given a dependence on fossil fuels. In such a system, a critical source of wealth stands to benefit not industrious individuals or even, necessarily, particularly efficient firms. Instead, it is sitting in the ground, ready to enrich any of those with access to it. And such access is rarely granted fairly. Frederick Douglass’s paper, in 1856, published an opinion on land reform, pointing out that:
”Earth, air, fire and water, are essential to human existence, and should be free to all men, in virtue of their heaven descended right. What justice is there in the General Government giving away, as it does, the millions upon millions of acres of public lands, to aid soulless railroad corporations to get rich?”
This consternation regarding the prejudiced granting of ‘earth’ is equally applicable to fossil fuels, which might be described as ‘fire’ in this formulation. Naturally, labor and capital are extended in the drilling and processing of oil or gas. But the greater part of the value thereof is pre-existing. Thus, the wealth derived therefrom creates precisely the same problems as wealth derived from land: it rewards ownership unduly, and thus creates a striving not for new technologies or better organization of firms, but for government favors. As such, it also fuels public reaction against its obvious inequality - a dissatisfaction that in the twentieth century has more often been harnessed by Marxists than liberals.
In one sense, in fact, fossil fuels are worse than land. Land derives its value largely from good governance - a fact long recognized by liberals going back at least to Adam Smith. A very fertile plot of land in a territory with no effective governance will be worth very little, and the valuable plots in a central business district rapidly contract in price if the governance thereof collapses. Thus, owners of land have some incentive to support, at least to an extent, their governments. Their assets are not created by their own exertions - but the value thereof is determined by the society around them, and thus they have some ‘skin in the game’, so to speak.
Fossil fuels, by contrast, are sold on continental or global markets. An oil firm need only worry about the relative stability of the land immediately around its rigs and the pipelines to the nearest port - and perhaps not even that, if the rigs are offshore. Similarly, a government collecting oil revenues can largely ignore the other aspects of its economy (until oil prices fall). Both of these tendencies undercut any efforts to implement liberalism by removing the incentive from power holders to do so. Even nationalized oil industries do not necessarily solve this problem if the oil revenues are used primarily for domestic consumption - this links the material well-being of the citizenry directly to the price of oil, rather than any quality of governance. And because there is no good alternative yet to fossil fuels for many applications, liberal industrial societies end up dependent either on foreign countries for their fossil fuels, or on these sectors in their own country - giving them undue political influence.
Finally, the burning of fossil fuels also circumvents the market system that liberal economics is built on. Prices in the market system described by Smith are intended to reflect supply of and demand for a good. However, any Econ 101 textbook will describe the fundamental weakness of this system - pricing externalities. The burning of fossil fuels produces costs not experienced (exclusively) by their producers or consumers - from air pollution to mountaintop removal to carbon dioxide emissions - that can be so enormous as to rival or surpass the costs reflected by the price. This greatly decreases the potential efficacy of market solutions and creates a major challenge for governments to overcome.
Fortunately, unlike the land issue, liberal states have a solution here - ‘fire’ may be a fundamental human need, but it needn’t come from fossil fuels. The invention and creation of alternative energy sources is an industry that absolutely does reward investment and innovation, and whose effective application also rewards efficacious governance. The faster the shift to renewable power in the US, Western Europe, and East Asia, the more likely liberal politics are to predominate in the coming century. And the transition away from oil especially will put pressure on states currently financed by fossil fuel sales to invest effectively and create political economies amenable to work, investment, and innovation. Those that manage to pave the way with their oil revenues will likely survive the transition, while those that do not will face greater struggles. And, if the theory behind economic liberalism has any validity, those that make the transition will face more pressure to allow a functioning civil society and embrace broader liberalism.
This is really good stuff.
Two things I would add to the conversation:
1.) The degree to which oil defies classical Econ goes beyond just the externalities. It is intensive of both infrastructure and political capital (to acquire land) and can tend to result in natural monopolies on top of the cartelization. It’s not an industry subject to markets and it really hasn’t been since the earliest days. Seven Sisters by Sampson covers the history of the oil industry and makes this point.
2. The degree to which oil precipitates intl conflict is ironically sort of under appreciated despite no blood for oil being a political rallying cry. I don’t think wars ever really start over oil but I think that it’s a consideration in many conflicts even the less obvious one. Mineral rights (oil) underpin a lot of the conflict in the South China Sea and even in Afghanistan there were important pipeline right-of-way issues that involved Massoud and the Taliban before 9/11. Peter Dale Scott talks about this.
Also I guess a third thing:
Often under appreciated how badly oil has hurt US political culture. I think that a substantial amount of the infrastructure of political “corruption” in the US originated with the Koch’s attempt to attack cap and trade and erode other climate legislation as detailed in Mayer’s Dark Money.
I think that the world warming up to nuke fission and generally shifting away from fossil fuel and “consumptive” energy is one of the biggest causes for optimism right now.