Volume XXXVII, Issue 2
Established 1987
October 6, 2006


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Editor's Note: What’s Wrong With Success?


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Lately, it seems that the oil industry in America has been public enemy number one. When ExxonMobil released its second quarter earnings in late July, showing a net income of nearly $1300 each second, the company and other players in the oil industry received countless criticisms from politicians, the media, and the general public. Yet, when one considers the immense capital costs of ExxonMobil’s projects, the net profit margin of the oil industry this past year—around eight percent—is comparable to the U.S. average. Even if the profit margins of oil companies were significantly larger than normal, why should people complain? What’s wrong with success?

I have always maintained that it is somewhat of a travesty that society portrays some of our nation’s early successful entrepreneurs like John D. Rockefeller, Leland Stanford, and J.P. Morgan as robber barons rather than heroes. Sure, they made their wealth off the hard work of less fortunate individuals, but they also provided an opportunity for those workers to make a living. Leland Stanford’s Central Pacific Railroad employed nearly 11,000 Chinese laborers in the construction of America’s first transcontinental railroad. Although the laborers were paid low wages and forced to perform strenuous tasks, they could look forward to a bright future with their earnings, which were relatively large compared to the norm in China. If they did not in fact benefit from Stanford’s arrangement, they would not have chosen to participate in the railroad’s construction.

The same can be said about ExxonMobil’s profiting from consumers. Critics of the oil industry’s immense revenue from high gas prices seem to gloss over the role of demand in determining what consumers pay at the pump. The thirst of average Americans for gasoline—not the greed of large corporations—supports the perpetuation of high prices. Consumers, by their own will, choose to value the convenience of their cars over alternative modes of transportation. This simple system of supply and demand has created and maintained the most successful economy in the world’s history. There’s no reason to believe that the same system won’t solve an energy crisis. If oil becomes too scarce and prices are forced too high, alternative sources of energy will become more feasible. In fact, this phenomenon is already happening through the institution of programs like Stanford’s Global Climate and Energy Project (GCEP—see front page story) and the increasing sales of hybrid vehicles.

Government must abstain from interfering with the market for energy. Recent cries for windfall profit taxes on oil companies will ultimately worsen the situation. Society must lessen its appetite for oil on its own. The forcing of premature alternative technologies on consumers and businesses by government will only make society’s future energy resources less economically viable.

Although the federal government already struck-down legislation to impose windfall taxes on oil companies, a measure on the California ballot in the November 2006 election could disrupt local energy markets. The initiative, Proposition 87, places a new tax on the revenue of oil producers in California that is expected to amount to $4 billion over the next ten years. The bill includes a provision that does not allow the oil producers to pass on the cost of the tax to consumers, but the difficulty of enforcing such a rule would inevitably fail in stopping a rise in the price of gasoline locally.

Unfortunately, allowing voters to decide on this issue in California could be dangerous. The advertising by the Yes on 87 campaign could prove unusually alluring to the average Californian voters: a false promise of maintaining the same gasoline prices while punishing “big oil.” The $40 million donated by movie producer Stephen L. Bing (the most ever donated by an individual in California for a ballot measure) and the vocal support of former President Bill Clinton also probably won’t hurt. It’s certainly possible that Californians might end-up unknowingly voting a $4 billion tax on themselves while thinking they’re punishing oil companies for their success.

It’s really astonishing that so much of society does, in fact, disdain success in business. A lot of good in this world, besides the creation of jobs and opportunities, has come from accomplishments in the business world. Stanford University, in fact, was founded from the profits from the Central Pacific Railroad. Enhanced revenues from ExxonMobil go towards programs like GCEP, which aim to reduce greenhouse gas emissions.

Anyways, it seems ridiculous that people think it is a crime to make money. Americans need to develop an appreciation for the capitalistic system. If they think gas prices are too high, they should figure out ways to reduce their gasoline consumption. Frustrations should not be taken out on the businesses and entrepreneurs that work so hard to bring their products to market.


Ryan Tracey






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