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COMPLEX SYSTEMS AND CRISES OF ENERGY1
John URRY
Sociology Department, Lancaster University
Marx and Engels: Modern bourgeois society ‘is like the sorcerer, who is no longer
able to control the powers of the nether world whom he has called up by his spells’2.
Catastrophism
This paper begins by examining a new trend in thinking about the future of societies, the
‘new catastrophism’. I examine how various analysts, scientists and commentators are
examining and advocating accounts of various catastrophic futures characterised by an
astonishing array of emergent risks. Systems set in place during the industrial period may
contain the seeds of their own destruction. There are no guarantees that the increasing
prosperity, wealth, movement and connectivity of what is increasingly termed the
anthropocene will continue. Some argue that the twentieth century in the rich North was a
short and finite period in human history. Its legacy could come to a shuddering halt with the
societies of the rich North ‘reversing’ or ‘collapsing’3.
This idea of collapse was explored in the late 1980s in Tainter’s The Collapse of Complex
Societies. He examined how societies become more complex often as a response to short term
problems, complexity demands ever greater high quality energy, increased energy produces
diminishing returns, and there is growing concatenation of problems which can reinforce
each other unexpectedly and unpredictably across domains. Tainter writes that: ‘however
much we like to think of ourselves as something special in world history, in fact industrial
societies are subject to the same principles that caused earlier societies to collapse’4.
This analysis of emergent risks is found in many new catastrophist social and scientific texts
which examine multiple interdependent processes in environment, economy, climate, food,
water and energy. This new catastrophism is developed in Our Final Century5, The Party’s
Over: Oil, War and the Fate of Industrial Society6, The Next World War. Tribes, Cities,
Nations, and Ecological Decline7, The Revenge of Gaia8, The Upside of Down. Catastrophe,
Creativity, and the Renewal of Civilization9, The Long Emergency: Surviving the Converging
1
Much more detail and evidence is provided in John Urry, Climate Change and Society (Cambridge: Polity
2011), and Societies beyond Oil (London: Zed, 2013). I use the term petrol rather than gas/gasoline throughout. I
almost entirely focus on transportation energy here which was so central to the mobile last century.
2
Karl Marx and Friedrich Engels, The Manifesto of the Communist Party (Moscow: Foreign Languages, [1848]
1888), p. 58.
3
I do not discuss here the resurgent powers of India and China; see my Societies beyond Oil (London: Zed,
2013).
4
Joseph Tainter, The Collapse of Complex Societies (Cambridge: Cambridge University Press, 1988), p. 216.
See Thomas Homer-Dixon, ‘Prepare for tomorrow’s breakdown’, Toronto Globe and Mail, May 14th, 2006.
5
Martin Rees, Our Final Century (London: Arrow Books, 2003). Lord Rees is a former Astronomer Royal and
President of the Royal Society.
6
Richard Heinberg, The Party’s Over: Oil, War and the Fate of Industrial Society (New York: Clearview
Books, 2005).
7
Roy Woodbridge, The Next World War. Tribes, Cities, Nations, and Ecological Decline (Toronto: Toronto
University Press, 2005).
8
James Lovelock, The Revenge of Gaia (London: Allen Lane, 2006).
9
Thomas Homer-Dixon, The Upside of Down. Catastrophe, Creativity, and the Renewal of Civilization
(London: Souvenir, 2006).
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Catastrophes of the 21st Century10, The Next Catastrophe11, Field Notes from a
Catastrophe12, With Speed and Violence. Why Scientists fear Tipping Points in Climate
Change13, Winds of Change. Climate, Weather and the Destruction of Civilizations14,
Meltdown15, Global Catastrophes and Trends: The Next Fifty Years16, Down to the Wire.
Confronting Climate Collapse17, World at Risk18, Requiem for a Species19, The Vanishing
Face of Gaia20, Living in the End Times21.
Best selling author Diamond maintains that environmental problems have in the past brought
about the ‘collapse’ of societies22. Eight environmental factors were responsible:
deforestation and habitat destruction; soil problems; water management problems; overhunting; over-fishing; effects of introduced species on native species; human population
growth; and the increased per-capita impact of people. Thus populations grew and stretched
natural resources, particularly energy resources, to breaking point, especially when such
societies were at the very height of their powers. He suggests that in the twenty first century
human-caused climate change, the build-up of toxic chemicals in the environment and energy
shortages will produce abrupt decline. This involves increases of global temperatures that
make much plant, animal and human life impossible, the running out of oil and gas, the
increased lack of resilience of many societies, a global failure of economy and finance,
population collapse, increasing resource wars, and huge food shortages. These might be a
‘perfect storm’ analogous to the ‘societal collapse’ experienced by the Roman Empire or the
Mayan civilization. Internal contradictions working slowly and imperceptibly over time
brought down apparently dominant systems based upon what seemed like the availability and
deployment of extensive supplies of energy.
Both Marx and Weber had been aware of the significance of energy resources. Marx wrote of
the: ’Subjection of nature’s forces to man, machinery, application of chemistry to agriculture
and industry, steam navigation, railway, electric telegraphs, clearing of whole continents for
cultivation, canalization of rivers’23. Weber recognised the finitude of the world’s fossil
resources24. But during the long twentieth century this resource-dependence came to be
forgotten. It seemed that ‘societies’ had been able to spin off and break free from their
resources. It was thought there were no finite limits and perverse consequences that flow
from using and exploiting the world’s resources and especially fossil fuels. When Bauman for
example writes of ‘liquid’ everything, he seemed to regard the social as ‘infinite’, without
limits and without costs or consequences, with no resources that are finite and whose effects
10
James Kunstler, The Long Emergency: Surviving the Converging Catastrophes of the 21 st Century (London:
Atlantic Books, 2006).
11
Charles Perrow, The Next Catastrophe (Princeton: Princeton University Press, 2007).
12
Elizabeth Kolbert, Field Notes from a Catastrophe. (London: Bloomsbury, 2007).
13
Fred Pearce, With Speed and Violence. (Boston: Beacon Press, 2007).
14
Eugene Linden, Winds of Change. Climate, Weather and the Destruction of Civilizations (New York: Simon
and Schuster, 2007).
15
Stephen Haseler, Meltdown (London: Forumpress, 2008).
16
Vaclav Smil, Global Catastrophes and Trends (Cambridge, Mass: MIT Press, 2008).
17
David Orr, Down to the Wire. Confronting Climate Collapse (New York: Oxford University Press, 2009).
18
Ulrich Beck, World at Risk (Cambridge: Polity, 2009).
19
Clive Hamilton, Requiem for a Species (London: Earthscan, 2010).
20
James Lovelock, The Vanishing Face of Gaia (London: Penguin, 2010).
21
Slavoj Žižek, Living in the End Times (London: Verso, 2011). Movies include 28 Days Later, Burn Up, I am
Legend, Syriana, The Day After Tomorrow, The Age of Stupid, Melancholia, Take Shelter and The Road.
22
Jared Diamond, Collapse: how societies choose to fail or survive (London: Penguin, 2011).
23
Quoted in Marshall Berman, All that is Solid Melts into Air (London: Verso 1983), p. 93.
24
Max Weber, The Protestant Ethic and the Spirit of Capitalism (London: Unwin, 1939), p. 181.
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mean that they might ‘bite back’25. And so-called liquid modernity actually depends upon the
literal liquid of oil but this is not noticed by Bauman or indeed almost all other social
scientists.
Systems thinking
Thus there is increasing interest in the ways in which previous civilizations collapsed. Many
of these analyses stem from the influence of ‘complex systems’ thinking in which small
changes can tip large systems over the edge, beyond a threshold so there are ‘runaway’
changes away from systems in equilibrium.
The starting notion here is that physical and social worlds are full of change, paradox and
contradiction. There are no simple unchanging stable states or states to which there is
equilibrium-establishing movement. Physical and social worlds can be characterised through:
‘the strange combination of the unpredictable and the rule-bound that governs so much of our
lives’26. So there are patterned, regular and rule-bound systems; these rule-bound workings
can come to generate various unintended effects; and unpredictable events can disrupt and
abruptly transform what appear to be these rule-bound and enduring patterns.
The ‘normal’ state then is not one of balance and equilibrium. For example, populations of
species can demonstrate extreme unevenness, with populations rapidly rising when
introduced into a given area and then almost as rapidly collapsing. Any system is thus
‘complex’. Policies never straightforwardly restore equilibrium, unlike the claims of policy
makers. Indeed, actions often generate the opposite or almost the opposite from what is
intended. So many decisions intended to generate one outcome, because of the operation of a
complex system, generate multiple unintended effects very different from what is planned 27.
Systems thus generally do not move towards equilibrium. Much economics presumes that
feedbacks will only be negative and equilibrium-restoring28. The equilibrium models
dominant in most economic system analyses, especially general equilibrium models, ignore
the huge array of positive feedbacks. Positive feedback mechanisms take systems away from
equilibrium states. Thus systems should be viewed as dynamic, processual and demonstrating
the power of the second law of thermodynamics, that physical and social systems move
towards entropy. Systems can be broadly viewed as unpredictable, open rather than closed
with energy and matter flowing in and out. Systems are characterised by a lack of
proportionality or ‘non-linearity’ between apparent ‘causes’ and ‘effects’. There can be small
changes that do bring about big, non-linear system shifts, as well as the converse.
But not all changes. Certain systems can be stabilised for long periods. Causation flows from
contingent events to general processes, from small causes to large system effects, from
historically or geographically remote locations to the general. Systems thus develop through
‘lock-in’ but with only certain small causes being necessary to prompt or tip the initiation of
each ‘path’. Systems once established are ‘locked in’ and their patterns and rules survive for
long periods even though there appear to be strong forces that ‘should’ have undermined
them. Institutions matter a great deal as to how systems develop. a fateful example of this
25
See Zygmunt Bauman, Liquid Modernity (Cambridge: Polity, 2000).
Philip Ball, Critical Mass. London: William Heinemann, 2004), p. 283.
27
See Stephen Budiansky, Nature’s Keepers (London: Weidenfeld and Nicholson, 1995); John Urry, Global
Complexity (Cambridge: Polity, 2003);
28
Brian Arthur, Increasing Returns and Path Dependence in the Economy (Michigan: University of Michigan
Press, 1994); Eric Beinhocker The Origin of Wealth (London: Random House, 2006). chap 3.
26
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being the ‘steel-and-petroleum’ car system dating from the late nineteenth century but which
has so far resisted all attempts to reverse its system dominance29. Systems adapt and coevolve in relationship to each other and hence possible futures are irreducible to single
‘structures’, ‘events’ or ‘processes’ with futures being messy and complicated and difficult
simply to re-engineer.
Moreover, movement from one state to another can be rapid, with almost no stage in
between. These strikingly abrupt transformations are normally known as phase transitions. As
a gas is cooled it remains a gas until it suddenly turns into a liquid. This rapidity can also be
seen in transformations between each ice age and the periods of relative warmth that occurred
in-between. There are only two states, the glacial and the interglacial with no third way in
between. Ice core research shows that there was abrupt movement from one state of the
earth’s system to the other, sometimes characterised as ‘punctuated equilibria’30.
The importance of small but potentially fateful changes is increasingly described through
black swans which are those rare, unexpected and highly improbable events that can have
huge impacts. They are outliers not averages. Black swans are responsible for much
economic, social and political change in the world. The most important events are those least
predictable31. Thus when change happens it may not be gradual but occurs dramatically, at a
moment, in a kind of rush. If a system passes a particular threshold, switches or tipping points
occur through positive feedback. The system turns over as many climate scientists now fear
with minor increases in global temperature provoking out-of-control ‘global heating’ that
could occur with ‘speed and violence’32.
Along with global climate change a number of other system failures are likely. One is the
probable decline in the availability of energy and especially oil and gas over the next few
decades. Further, the world’s population is growing by about 900 million per decade, the
largest absolute increases ever recorded in human history33. Rapid population growth in
developing countries especially exposes populations to many hazards. The world went urban
on May 23rd 200734. Cities consume three-quarters of the world’s energy and are responsible
for at least three-quarters of global pollution35. Much food production depends upon
hydrocarbon fuels to seed and maintain crops, to harvest and process them, to transport them
to market partly because of the exceptional food miles that have come to be involved in diets
in the rich North36. There are likely to be food protests as a result of likely flooding,
desertification and generally rising costs, as well as the tendency for ‘rich’ societies to engage
in ‘land grabs’. There are also growing insecurities in supplying clean usable water with huge
demands from growing populations, especially those in mega-cities that have to both buy and
transport, using carbon-based systems, their water from outside. A global temperature
increase of 2.1 degrees would expose up to 3 billion people to water shortages37. Some
commentators now refer to ‘peak ecological water’, only 0.007% of water on Earth being
29
Kingsley Dennis, John Urry, After the Car (Cambridge: Polity, 2009).
Fred Pearce, With Speed and Violence. (Boston: Beacon Press, 2007).
31
Nassim Taleb, The Black Swan (London: Penguin, 2007), pp. 166-7.
32
James Lovelock, The Revenge of Gaia (London: Allen Lane, 2006); Fred Pearce, With Speed and Violenc
(Boston: Beacon Press, 2007).
33
Gilberto Gallopin, Al Hammond, Paul Raskin, Rob Swart, Branch Points: Global Scenarios and Human
Choice (Stockholm: Stockholm Environment Institute - Global Scenario Group, 1997), pp. 1-47.
34
May 23rd 2007 is ‘transition day’: http://news.ncsu.edu/releases/2007/may/104.html (accessed 24/05/07).
35
Richard Rogers, Cities for a Small Planet (London: Faber and Faber, 1997).
36
David Pfeiffer, Eating Fossil Fuels (Gabriola Island, BC: New Society Publishers, 2006), p.2.
37
See TimesOnline - http://www.timesonline.co.uk/tol/news/world/asia/article2994650.ece (accessed 11/12/07).
30
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available for human use38. Already severe water shortages face one third of the world’s
population.
Moreover, these systems are increasingly seen as interacting with each other. Homer-Dixon
notes: ‘I think the kind of crisis we might see would be a result of systems that are kind of
stressed to the max already … societies face crisis when they’re hit by multiple shocks
simultaneously or they’re affected by multiple stresses simultaneously’39. Human and
physical systems exist in states of dynamic tension and are especially vulnerable to dynamic
instabilities. Systems may well come to reverberate against each other and generating impacts
upon larger systemic changes. It is the simultaneity of converging shifts that create significant
changes. Thus resource depletion, climate change and other processes may come to overload
a fragile global system, creating the possibility of catastrophic failure40.
Moreover, states even in rich societies are often unable to cope with crises (New Orleans,
Fukushima), with potential oil shortages, droughts, heat waves, extreme weather events,
flooding, desertification, highly mobile diseases and the potential forced movement of
millions of environmental refugees41. States have to deal with such concatenating processes
although their tax revenues have been reducing because of the proliferation of offshored tax
havens42.
The social sciences have mostly ignored issues of resources and especially energy, and
indeed of the perverse contradictory consequences of use and over-use. The social sciences in
a way replicated and reproduced a world where resources and especially energy were more or
less free goods and unimportant for deciphering the lineaments of change and development.
But that was the twentieth century. Now we are in the new century the world looks different
indeed and issues of resource depletion, contestation and collapse will be haunting it in some
potentially catastrophic decades to come.
Let me try to show some of this through the interconnecting strange systems of oil, money
and property.
Oil the wheels of society
It is often said that money makes the world go round as trillions of dollars, euros, yen, yuan
and major currencies circulate around the world at dizzying speed. The scale of this
predominantly digital movement dwarfs the income and resources available to all individuals,
most companies and many countries.
But there is another powerful mobile force in the world and that is oil. Žižek writes about its
origins: ‘Nature is one big catastrophe. Oil, our main source of energy—can you even
imagine what kind of ultra-unthinkable ecological catastrophe must have happened on earth
38
David Pfeiffer, Eating Fossil Fuels (Gabriola Island, BC: New Society Publishers, 2006), p.15.
THomas Homer-Dixon, The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization (New
York: Island Press, 2006), p.1.
40
See N. Gilman, D. Randall, P. Schwartz (2007) ‘Impacts of Climate Change: A System Vulnerability
Approach to Consider the Potential Impacts to 2050 of a Mid-Upper Greenhouse Gas Emissions Scenario’.
Global Business Network: January (pp. 1-24).
41
Chris Abbott, An Uncertain Future: Law Enforcement, National Security and Climate Change (Oxford:
Oxford Research Group, 2008),
http://www.oxfordresearchgroup.org.uk/publications/briefing_papers/pdf/uncertainfuture.pdf (accessed
18/02/08)
42
Ronen Palan, The Offshore World (Ithaca: Cornell University Press, 2003).
39
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in order that we have these reserves of oil?’43 Ancient fossilized organic materials settled on
the bottom of seas and lakes and were buried. As further layers were laid on top, so intense
heat and pressure built up and this caused the organic matter ultimately to change into liquid
and gaseous hydrocarbons. The long hydrocarbon chains of oil are in effect ‘preserved sun’
and only the sun exceeds oil in its energy. This was a unique gift but like most gifts it is finite
and irreplaceable.
This oil is central to ‘western civilisation’. Oil as much as money makes the world go round.
It is remarkably versatile, convenient, mobile and for most of the twentieth century
exceptionally cheap since it first gushed out of the ground at Spindletop in Texas in 1901. At
$100 a barrel the world’s known oil reserves are currently worth $104 trillion or forty times
the value of the UK economy44.
Oil makes fast movement possible. It provides almost all transportation energy in the modern
world (at least 95%) powering cars, trucks, planes, ships and some trains. It thus makes
possible the mobile lives of friendship, business life, professions and families. Oil also moves
components, commodities and food around the world in trucks, planes and vast container
ships, as well as oil itself in large tankers45. Oil is also an element of most manufactured
goods and much packaging and bottling worldwide (95%). It is crucial to at least 95% of food
production and distribution for a rising world population through providing power for
irrigation, moving food and providing pesticides and fertilisers46. Also oil is used for much
domestic and office heating especially within oil-rich societies, and is crucial in providing
back-up power and lighting. Overall oil generates around a third of all greenhouse gas
emissions and is a major category currently increasing across the world. Besides being itself
mobile, oil is energy-dense, storage-able, and non-renewable.
It was contingent carbon resources and especially ‘oil’ that enabled the ‘west’ to dominate the
long highly mobile twentieth century. It was less the Enlightenment or western science or
liberalism that secured western civilization. It was its carbon resources and especially the
mobile energy resource of oil which generated an exceptional ‘modern, mobile’ civilization
based on fast movement. Owen writes how: ‘Oil is liquid civilization’47.The west
consolidated its power and influence in the world beginning in the US. Cheap plentiful oil
was central to American economic, cultural and military power48. If the American Dream was
experienced by the world’s population, it would take five planets to support it49. American
production and consumption got there first, because it initiated and monopolised the
manufacture of ‘Large Independent Mobile Machines’ or LIMMs. LIMMs carry their own
energy source and given the denseness and historic cheapness of oil this was highly efficient
43
http://www.democracynow.org/2008/5/12/world_renowned_philosopher_slavoj_zizek_on (accessed
20.05.10).
44
Manraaj Singh, ‘What’s all the oil in the world worth?’ http://www.fleetstreetinvest.co.uk/oil/oil-outlook/oilworld-worth-00027.html (accessed 23.06.11).
45
Worldwide Fund for Nature, Plugged In. The End of the Oil Age, Summary Report (Brussels: WWF, March
2008), p. 2.
46
Mark Harvey, Sarah Pilgrim, ‘The new competition for land: food, energy and climate change’, Food Policy,
2011, 36: S40-S51, p. S42. ‘Industrialised farming’ requires 50-100 times the energy input of ‘traditional
farming’.
47
David Owen, Green Metropolis (London: Penguin, 2011), p. 77.
48
See Stephen Burman, The State of the American Empire (London: Earthscan, 2007); Richard Heinberg, The
Party’s Over (East Sussex: Clairview Books, 2005), pp. 30-2.
49
Mike Hulme, Why We Disagree About Climate Change (Cambridge: CUP, 2009), p. 261.
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generating the ‘addiction to oil’50. Globally there are nearly one billion cars and trucks and
almost one billion international air journeys a year.
The geologist M. King Hubbert who discovered the problem of ‘American peak oil’ in the
1950s noted its problem: ‘you can only use oil once...Soon all the oil is going to be burned’51.
Many suggestions and prototypes are being developed to produce alternative energy
especially nuclear, solar and wind. But these do not replace oil and ‘oil civilization’52. The
global economy-and-society became utterly locked into upon this one source of mobile
power. Moreover, all alternative fuels have a much poorer ratio of energy returned on energy
invested, or EROEI. Furthermore, as oil’s price rises there is not necessarily more produced
and delivered to the market-place. Currently its supply seems relatively fixed and intermittent
rapid increases in price are certain. Moreover, most new socio-technical systems here take a
very long time to develop, often decades. An energy transition from one type of energy
system to another only happens once a century or so then with utterly momentous
consequences53.
It is huge problem for one resource to be the basis of these modern systems and societies. The
future of oil is the future of modern societies set upon their pathway during the twentieth
century. This had a dramatic effect in exploiting the earth’s resources. Nye states: ‘We have
deployed more energy since 1900 than all of human history before 1900’54. The twentieth
century used as much energy as the previous hundreds of centuries of recorded human
history. And in using those resources to engender fast movement that century generated
carbon dioxide emissions that remain in the atmosphere for hundreds of years.
The oil exploring, producing and using industries are a huge economic enterprise containing
many of the world’s largest and richest companies. This ‘carbon capital’ consists of westernbased oil ‘super majors’ (ExxonMobil), state oil companies mainly found in producing
countries (Saudi Aramco, the world’s most valuable company), car and truck producing
corporations (Toyota as the world’s largest up to 2011), huge engineering and road
construction companies (Bechtel), and many corporations providing services to car-drivers
and passengers (Holiday Inn, McDonalds). This capital made the mobile twentieth century.
Further, finance and oil are intertwined. Oil is speculated upon in financial markets. Its price
movements now stem from this speculation as from changes in the supply and demand of oil
for transportation and manufacturing. A major Report for Lloyds of London shows how
speculation de-stabilises supply and price and further reduces energy security55. There are
now over seventy five crude oil financial derivatives where there was one fifteen years ago.
This Lloyds Report maintains that extensive growth in financial trading in oil makes oil
prices higher and more unstable56. Oil prices are exceptionally sensitive to even small
changes in demand.
50
Ian Rutledge, Addicted to Oil (London: I. B. Tauris, 2005), pp. 2-3.
Richard Heinberg, The Party’s Over (New York: Clearview Books, 2005), p. 100.
52
David Owen, Green Metropolis (London: Penguin, 2011), p. 77.
53
Vaclav Smil, Energy Transitions (Santa Barbara, Ca: Praeger, 2010).
54
John R. McNeill, in http://www.theglobalist.com/StoryId.aspx?StoryId=2018: (accessed 19.1.12).
55
Antony Froggatt, Glada Lahn, Sustainable Energy Security (London: Lloyd’s and Chatham House, 2010), pp.
13-5. Derivative markets are essentially unregulated and greatly contributed to the economic collapse of 2007-8.
There are now even ‘nature’ derivatives.
56
See Dan Dicker, Oil’s Endless Bid (New York: Wiley, 2011).
51
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And according to the Chief Economist of the International Energy Authority the peaking of
global oil supplies is not for the future but occurred in 200657. I now show how that peaking
has already had major economic and social consequences. The world economic crash of
2007-8 onwards was partly brought about by oil shortages and price increases.
Neo-liberalism and indebtedness
Crucial here is neo-liberalism which became the dominant global orthodoxy of economic and
social policy from around 1980. It moved from its birthplace within the Economics
Department at the University of Chicago58. Even by 1999 Chicago School alumni included 25
Government Ministers and over a dozen central bank presidents throughout the world59.
Neo-liberalism is a doctrine and set of practices that asserts the power and importance of
private entrepreneurship, private property rights, the freeing of markets and the freeing of
trade. These objectives are brought about by deregulating private activities and companies,
privatizing previously ‘state’ or ‘collective’ services especially through low taxes,
undermining collective powers of workers and professionals, and providing conditions for the
private sector to find ever-new sources of profitable activity. Neo-liberalism especially
minimises the role of the state, to readdress the balance as it sees between the ‘bad’ state and
‘good’ markets. Neo-liberals hold that states are always inferior to markets in ‘guessing’ what
should be done. States are thought of as inherently inefficient and easily corrupted by private
interest groups. Markets are presumed ‘natural’ and will move to equilibrium, if unnatural
forces or elements do not get in the way.
However, states are often important in eliminating ‘unnatural’ forces, destroying sets of rules,
regulations and forms of life that slow down economic growth and constrain the private
sector. Sometimes that destruction is exercised through violence and attacks upon democratic
procedures. The ‘freedom of the market’ is brought about through ‘shock treatment’, the
creation of an ‘emergency’ which enables the state to wipe the slate clean and impose freemarket solutions60. Klein describes how the disaster of Hurricane Katrina in New Orleans in
2005 provided conditions for the large scale privatization of the New Orleans school
system61. Never let a good crisis go to waste is a neo-liberal mantra.
Harvey summarises neo-liberalism as involving ‘accumulation by dispossession’62. Peasants
are thrown off their land, collective property rights are made private, indigenous rights are
stolen and turned into private opportunities, rents are extracted from patents, general
knowledge is turned into intellectual ‘property’, the state forces itself to sell off or outsource
its collective activities, trade unions are undermined, and financial instruments and flows
redistribute income and rights towards finance and away from productive activities.
Since 1980 neo-liberalism became the dominant global discourse. It especially involves the
light regulation of banks and financial institutions and the resulting trillion dollar growth in
financial securitization. The distinction between commercial and investment banking has
57
http://www.good.is/post/international-energy-agency-s-top-economist-says-oil-peaked-in-2006/ (accessed
27.12.11).
58
See David Harvey, A Brief History of Neo-Liberalism (Oxford: Oxford University Press, 2005); Naomi Klein,
The Shock Doctrine (London: Penguin Allen Lane, 2007); Colin Crouch, The Strange Non-Death of NeoLiberalism (Cambridge: Polity, 2011).
59
Naomi Klein, The Shock Doctrine (London: Penguin Allen Lane, 2007), p.166.
60
Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 2002).
61
Naomi Klein, The Shock Doctrine (London: Penguin Allen Lane, 2007), pp. 3-21.
62
David Harvey, A Brief History of Neo-Liberalism (Oxford: Oxford University Press, 2005), pp. 159-61.
9
been undermined with the lowering of lending standards and the proliferation of innovative
business models. There was the ‘macho’ domination of financial services and a privileging of
competitive individualism implemented through a bonus culture rewarding indebtedness and
dangerous risk taking.
There has also been the extensive movement offshore of revenues that ought to be taxed and
used for providing collective services and benefits onshore. There are around seventy or so
secrecy jurisdictions. ‘Offshore is how the world of power now works’63. More than half of
world trade now passes through tax havens, including much oil revenue. A quarter of all
global wealth is held ‘offshore’64. Such offshoring is central to the enormous shadow banking
system and the overwhelming imbalance between ‘financialization’ and the ‘real economy’65.
By September 2008 the global value of financial assets was $160 trillion, more than three
times world GDP66.
Finance in the 1990s and early 2000s especially flowed not into manufacturing industry but
into many kinds of property. In order for property to get built the private sector often cajoles
national or regional states to create and pay for, often through borrowing, related mobility
infrastructures such as motorways, high speed rail links and airports. Property development is
then undertaken by firms who borrow finance. The properties built are then purchased by
buyers who also borrow to make the purchase. Loans are made to property purchasers who
could not otherwise be able to buy. Thus there is a speculative funding of highly leveraged
new developments that are leased or sold with indebtedness on all sides. Property
developments here include suburbs, apartments, second-homes, hotels, leisure complexes,
gated communities, sports stadia, office blocks, universities, shopping centres and casinos, all
built on the indebtedness of developers, purchasers as well as states.
Central here is the speculative intertwining of property and finance involving new forms of
‘finance’. The debts incurred are turned into commodities or ‘securitized’. They are parcelled
up, sliced and diced, into financial packages which are sold on, with huge markets developing
throughout the world for many of these ‘products’ which presuppose that property can only
be worth more. This creates a financially complex ‘house of cards’ resting upon the ‘bet’ that
property rises in value. During the 2000s an unsustainable ‘bubble’ of private, corporate and
national indebtedness developed especially within the US.
Moreover, many new suburbs in the US from the 1980s onwards were built distant from city
centres. They were not connected to city centres by mass or public transit. Such Sprawltowns
depended upon car travel and hence plentiful cheap oil so newly arriving residents could
commute to work and drive about for leisure and social life67. Only one-half of US suburbs
have any access to public transport and residents are wholly dependent upon car travel and
thus upon the price of oil68.
63
Nicholas Shaxson, Treasure Islands (London: Bodley, 2011), pp. 7-8, 26-7.
Nick Kochan, The Washing Machine (London: Duckworth, 2006).
65
See Joseph Stiglitz, Making Globalization Work (Harmondsworth: Penguin, 2007); Paul Krugman, The
Return of Depression Economics (Harmondsworth: Penguin, 2008); George Soros, The New Paradigm for
Financial Markets (London: Public Affairs Ltd, 2008); Hugo Radice, ‘Confronting the crisis: a class analysis’,
Socialist Register, 2011, 47: 21-43.
66
Saskia Sassen, ‘Too big to save: the end of financial capitalism’, Open Democracy News Analysis, 1.1.2009.
67
Richard Ingersoll, Sprawltown (New York: Princeton University Press, 2006).
68
Jeff Rubin, Why your world is about to get a whole lot smaller (London: Virgin, 2009), p. 123.
64
10
Much of this suburban housing was ‘sold’ to people with ‘sub-prime’ employment, credit and
housing histories, involving new financial ‘innovations’. Although sub-prime housing is
known to be ‘central’ in the events that ‘triggered’ the crash of 2007/8, it has not been
recognised how sub-prime suburbs were driven to the brink by a problem of mobility, by oil
dependence and oil price spikes in the few years beforehand. Even Stiglitz’s dissection of the
American ‘mortgage scam’ does not grasp how energy resources can bite back and reverse
what seemed at the time irreversible69. How did oil reverse what appeared inevitable, that
property could only keep going upwards in value?
There was cheap oil for much of the period since the early 1980s. The US index of petrol
prices was in money terms 134 in 1990 and more or less the same in 2000 (138)70. The
roaring 1990s especially of house price inflation, which ran two and a half times the increase
in per capita income for Americans, was based upon the falling real price of petrol71. Such
petrol prices remained more or less constant in money terms until 2003 (145).
Indebtedness in the US in turn fuelled the huge growth in consumption as house prices rose.
It became possible to cash in the ‘rising values’ of property especially 2002-4. That money
was used to fund further consumer purchases especially of goods manufactured in China and
transported to the US in vast container ships. This generated a huge US current account
deficit72. Many Americans believed that they were really richer as house prices continued to
rise and private debt skyrocketed. Also many people were drawn into purchasing housing
through very low rates in the first few years of their mortgage but where much higher rates
were charged in later years (‘variable rate mortgages’).
Writing during 2006, Brenner describes how financial speculation was producing a real estate
mania. The total value of residential property in developed economies rose by more than
thirty trillion US dollars between 2000 and 2005. This staggering increase was equivalent to
100% of those countries’ combined GDPs at the time73. Indebtedness was thus built upon
indebtedness. Such intersecting bubbles of asset prices seemed not to be understood by
anyone, nor could they be ‘governed’. George Soros, one of the financial ‘masters of this
universe’, reports that no one understood the global system that they themselves were
creating74!
Bubbles burst
Bubbles though burst and they burst most dramatically and painfully as they fill with more
and more hot air. The bursting of this bubble first in the US from 2005 onwards and then
worldwide had dramatic consequences for the real economy. This is where oil is central.
Throughout the twentieth century soaring oil prices generate economic crises. All recent
major economic crises bar one have rising oil prices at their core. Murray and former UK
Government Chief Scientist King maintain that the events of 2007-8 were not just a credit
crunch but an ‘oil-price crunch’75.
69
Joseph Stiglitz, Freefall (London: Penguin, 2010), chap. 4.
These are end of year figures.
71
Joe Cortright, Driven to the Brink (Chicago: CEOs for Cities, 2008), p. 3.
72
Robert Brenner, The Economics of Global Turbulence (London: Verso, 2006), pp. 318-9.
73
Robert Brenner, The Economics of Global Turbulence (London: Verso, 2006), pp. 342-3.
74
George Soros, The New Paradigm for Financial Markets (London: Public Affairs Ltd, 2008). Gillian Tett in
Fool’s Gold (London: Little, Brown, 2009), shows how financial innovations at J. P. Morgan produced a global
‘catastrophe’ costing $2-4,000 billion.
75
James Murray, David King, ‘Climate policy: oil’s tipping point has passed’, Nature, 2012, 481: 433-35.
70
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In the middle years of the 2000s global shortages of oil led to a rapid rise in petrol prices
worldwide including the US. The US imports two-thirds of its oil and possesses only 3% of
global oil reserves76. There was a 5-fold increase in ‘real’ oil prices between 2002 and
200877. Over a longer period the price per barrel of oil increased over fourteen times between
1990 and 2007 partly because the world output of oil and related products could not be raised
beyond around 85 million barrels a day. Labban maintains that this ‘the oil crisis arrives as a
financial crisis’78.
Moreover, hurricanes Katrina and Rita hit the Louisiana coastline during 2005. These
extreme weather events destroyed billions of dollars of gas and oil infrastructures through
flooding the Mississippi delta. Other refineries around the world were working to full
capacity and could not increase production when these Mississippi refineries were shut down.
Rita led to the capsizing of a production platform. Such extreme weather events intersected
with the crisis of oil supply. This illustrates the argument that: ‘societies face crisis when
they’re hit by multiple shocks simultaneously79.
These hurricanes were the extreme events that showed the vulnerability of the world’s ‘oil
civilization’. Without the capacity to replace Gulf of Mexico supplies, the price of oil
skyrocketed. There will be many other occasions when floods or hurricanes or blowouts or
revolutions will reduce supply, dramatically increase prices and devastate patterns of life
including those living in suburbs built upon ‘easy oil’, easy movement and the presumed
rising price of property80. These oil shortages were reflected in the US petrol price spiking in
the 2000s. It reached 302 in 2007 and a peak of 405 in July 2008. The petrol price peaked
2007-2008. By February 2009 the petrol index was still higher at 186 than it had been in
200081.
But many living in new American suburbs were completely locked into cheap petrol and
cheap movement. Without it they could have no life. As petrol prices increased, so property
owners were forced to reduce their expenditure on housing and other goods and services
including that on cars. Hamilton argues that: ‘the oil price increase was one factor pushing
home sales and house prices down’ very rapidly82. In the heated atmosphere of the bubble:
‘gas [ie petrol] price increases may have been the trigger that broke the expectations of
continued growth’83. Suddenly it cost more to fill up an SUV’s petrol tank than it cost to buy
a week’s grocery.
The American housing boom was thus brought to a shuddering halt through the escalating
price of petrol in the middle years of the last decade. This increase tipped financially weak
households over the financial brink. They could no longer afford the mortgage payments
which they anyway could only just manage to pay given their sub-prime standing. Ten
76
John Hofmeister, Why We Hate the Oil Companies (New York: Palgrave Macmillan, 2010), pp. 26, 48.
Jeff Rubin, Why your world is about to get a whole lot smaller (London: Virgin, 2009), p.183.
78
Mazen Labban, ‘Oil in parallax: scarcity, markets, and the financialization of accumulation’, Geoforum, 2010,
41: 541-552, p. 551. See Daniel Yergin, The Quest (London: Allen Lane, 2011), chap. 8 on recent oil price
movement.
79
Thomas Homer-Dixon, The Upside of Down (New York: Island Press, 2006), p.1.
80
See David Strahan, The Last Oil Shock (London: John Murray, 2007), pp. 57-60.
81
http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html (accessed 27.02.09)
82
James Hamilton, ‘The oil shock and recession of 2008: Part 2’ 2009 Econbrowser
http://www.econbrowser.com/archives/2009/01/the_oil_shock_a_1.html (accessed 10.03.09).
83
Joe Cortright, Driven to the Brink (Chicago: CEOs for Cities, 2008), p. 5; Jago Dodson, Neil Sipe, Shocking
the Suburbs (Sydney: UNSW Press, 2008).
77
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thousand homeowners lost their home to foreclosures every day. Millions of Americans
received foreclosure notices and tens of billions in real-estate assets were written off as losses
by banks. This was a vicious circle. Foreclosures helped accelerate the fall of property values,
helping to spur more foreclosures. The losses they created brought the financial system to the
brink of collapse in the fall of 2008. The steep recession that followed led to greater
homeowner foreclosures, as homeowners who lost their jobs often also lost their homes.
Many households thus defaulted on their mortgages, suburbs collapsed with much property
for sale, financial institutions around the world were left holding huge amounts of bad debt
(albeit rated AAA by the major ratings agencies), some banks went to the wall or were
‘nationalised’, and there was a global recession on an unprecedented scale continuing into
2012.
There was a geographical distribution to these patterns. House price falls were the most
marked in suburbs rather than in metropolitan cores and they were especially steep in those
distant ‘oil-dependent’ suburbs. House price reductions were greatest where there were no
alternatives to the car and the highest dependence upon the price and availability of petrol for
almost all aspects of life. Households were spending up to 30% of their income on travel.
Cheap oil was a necessity.84
Because of increases in the cost of petrol the value of housing in commuter belts dropped
very steeply. Many such suburbs turned into ‘ghostburbs’, full of foreclosures, for sale signs
and empty housing. This meant that: ‘households are being made to rethink another cherished
American institution – the white picket-fenced suburban dream home’85.
This all reduced US consumer spending, similar to what happened in 1990-1 during the first
Gulf War. This reduction led to multiple defaults as banks realised that they held huge
amounts of bad or toxic debt. This produced the escalating collapse of especially investment
banks in the US and then around the world which had also ‘invested in’ many American
mortgages. This house of financial cards came tumbling down, beginning in these oildependent suburbs full of American households who had been sold ‘sub-prime’ mortgages
through a vast ‘scam’ according to Stiglitz86.
There were many consequences of this collapse, including a reduction in the distances
Americans (and others) now travel. This was the first downward shift of US mileage for
thirty years or so87. Such reductions produced a marked decline in car sales with at least
150,000 fewer people being employed in the US motor industry. Global oil production fell by
two million barrels per day in 2009, or 2.6%, the largest decline since 198288. Some speculate
that this slowdown marks the beginning of the end for ‘oil addiction’ as it collapsed first in
these American ‘sub-prime’, oil-dependent suburbs locked in to cheap car-based movement.
Conclusion
84
Joe Cortright, Driven to the Brink (Chicago: CEOs for Cities, 2008).
Polly Ghazi, ‘Gas guzzlers and “ghostburbs”’, The Guardian, 2008, July 2nd. Jago Dodson, Neil Sipe,
Shocking the Suburbs (Sydney: UNSW Press, 2008); Jeff Rubin, Why your world is about to get a whole lot
smaller (London: Virgin, 2009), pp. 190-1.
86
Joseph Stiglitz, Freefall (London: Penguin, 2010), chap. 4, on how securitizing mortgages made them more
and not less risky.
87
John Urry, ‘A low carbon economy and society’, Philosophical Transactions of the Royal Society
(forthcoming); Joe Cortright, Driven to the Brink (Chicago: CEOs for Cities, 2008), p. 17.
88
http://www.bp.com/sectiongenericarticle.do?categoryId=9023770&contentId=7044467 (accessed 20.04.11).
85
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In the last years of the last century, neo-liberalism ratcheted up the global scale of movement
within the global North. Oil enabled this. This travel of people and goods is essential to most
social practices that depend upon and reinforce a high carbon society. Much of this high
carbon production and consumption was based on indebtedness and on a greatly increasing
significance of ‘finance’ within modern economies. Indeed money was increasingly
borrowed from the rest of the world especially China so as to fuel this carbon extravaganza
for the global rich.
But this extravaganza came to a shuddering halt when oil prices increased in the early years
of this century. Suburban houses could not be sold especially where they were in far-flung
oil-dependent locations. Financial products and institutions were found to be worthless. Easy
money, easy credit and easy oil had gone together. And when oil prices hit the roof in these
US suburbs then easy money and credit also came to a halt and the presumed upward shift in
property prices was shown to be a false dream. The financial house of cards had been built
upon cheap oil and cheap mobility.
As oil got prohibitively expensive the house of cards collapsed. This story of oil in the US
provides a bleak vision of the future as ‘easy oil’ more generally runs out by the middle of
this century. The Chief Economist at HSBC Bank maintains that: ‘Even if demand doesn’t
increase, there could be as little as 49 years of oil left’89. And of course demand is increasing
very rapidly especially outside the ‘west’. Elsewhere I show how we have not seen anything
yet with collapsing supplies and dramatically rising prices will wreak future devastation
around the world in decades to come. Bill Spence, former Vice-president of Shell
apocalyptically writes how in the next few decades: ‘Twice the energy with half the carbon
dioxide is a challenge for us all’90.
The twentieth century has left us with an utterly unsustainable civilization based on the
mobilities of people and goods requiring this one resource of cheap, plentiful easy oil. Cannot
live with oil, cannot live without it, we might conclude. Energy systems and energy crises can
bite back with interest.
89
Karen Ward, HSBC, cited in http://www.cnbc.com/id/42224813/Oil_Will_Be_Gone_in_50_Years_HSBC
(accessed 28.12.11).
90
Cited Bryan Lovell, Challenged by Carbon (Cambridge: Cambridge University Press, 2010), p.
171.