MONEY From Rolls to the oil crisis
NICHOLAS DAVENPORT
'The options remain open' was the headline applied not only to the Rolls-Royce crisis but to the oil crisis in the Middle East. As this was the slogan of Mr Harold Wilson during his term of office the Opposition should calm down, stop singing the 'Red Flag' and wait upon events. These two crises of capitalism must be resolved on the basis of commercial reality.
I know that it is unfashionable to quote Mr Heath, but he did talk a lot of good common sense in his address to the Young Conservatives at Eastbourne, who no doubt needed it. For too long, he said, our apparent prosperity has been based on illusions. Man- agement must rid itself of the illusion that it could go on indefinitely running a business in conditions that did not pay; the unions must rid themselves of the illusion that they could go on indefinitely demanding higher wages without any concern for the effects; and governments must rid themselves of the illusion that a way to prosperity could be found by pouring out taxpayers' money in perpetual subsidies for uneconomic ventures.
In the case of Rolls-Royce, commercial reality demands that the contract for the RB 211 engine should give Rolls-Royce a profit at least sufficient to meet its high loan charges. It is ridiculous of Mr Haughton, the chairman of Lockheed, to charge the British government with defaulting On the contract. It was Rolls-Royce who defaulted because the old contract 'busted' them. If Lockheed wants the RB 211 it must revise and remake the contract to make it viable for the supplier. The Government has rightly
instructed the Receiver to carry on the undertaking for three weeks to allow time for Lockheed to make .up its mind. But it won't regard the project as worth the huge loss of money involved just for the sake of British prestige. I am sure that British pres- tige will stand higher if we keep our com- mercial senses and remain solvent. It would really sink if we went on playing the com- mercial fool.
Thii RB 211 contract reminds me of my first commercial experience. I was secretary to a British oil company which contracted with an American for the supply of oil to the British passenger liners. The American chairman, Mr Doheny, who was later accused of bribing Secretary Fall over the Tea Pot Dome contract, told us that a famine of oil was coming and that we must pay his inflated price. Within three months a glut of oil developed, the market price of oil collapsed and we were 'bust'. Mr Doheny had to re-write the contract to make our company viable. Mr Haughton will have to do the same if he wants the RE 211 engine. Of course, if he can get both the American and British governments to help, so much the better for all.
This brings me to the oil crisis. Here it is more difficult to define commercial reality because the western oil companies are up against prickly governments and, there is much bitterness between the two. A hand- some but angry Shah of Shahs appeared on our television screens last week declaring that the oil companies have been cheating them. His performance was most impressive.
His command of his subject—economic as well as technical—was consummate. One felt that he might be more than a match for Lord Strathalmond of BP at the negotiating table. He could step from the Peacock Throne to the chair of any one of the great international oil companies and feel equally at home (or more so?). As leader of the group of producing countries (oPEc) he did not deign to negotiate on price; he fixed the price and the date for acceptance, saying that if the companies had not accepted by then (last Monday) supplies would be cut off. He knew perfectly well that the producers could hold out longer than the consumers because their people could live indefinitely on dates, which we couldn't. All that the companies could negotiate on was a guarantee that prices and supplies would be stabilised over the next five years. This they secured. It is a relief for them to know that there will be no leap-frogging of one country over another in price concessions. But even so Libya, which is becoming marxist as well as prickly, is holding out for higher prices. The agreement covers only the six Gulf producers.
The price dictated was stiff enough. The average 'posted' price for Gulf oil goes up on 1 June by thirty-five cents (us)—not by twenty cents as the oil companies bargained for—a rise of nearly 20 per cent. Thereafter five cents a barrel Will be added on 1 January in each of the years 1973-75. The six Gulf states will secure an additional revenue of over $1,200 million in 1971 rising to about $3,000 million in 1975. The consuming countries will meet the bill—not the profits of the twenty-two oil companies. As far as Britain is concerned our oil import bill, presently near £700 million a year, will go up by over £100 million. It will put one new penny (or 2f old) on to the gallon of petrol if the increase is spread 'over the barrel', that is, including other products. It might he more if Libya, which supplies over 20 per cent of our oil requirements, holds out for more than it is fair to pay having regard to her better quality oil and shorter haul. To avoid the push to our domestic price inflation which this sharp increase in oil would give, the Government should reduce the duty in the April Budget. It is now 4s 6d or 22f new pence.
In this instance political realities dictated commercial reality. It would be ironic if this costly settlement of the oil crisis were followed by an extra demand from the men who deliver the oil products by the tanker- load. What does commercial reality mean for a trade union? At present they are under the illusion, as Mr Heath said, that they can go on demanding higher and higher wages regardless of the economic conse- quences. But the Rolls-Royce crisis may bring these consequences home to them— the closing of factories, redundancies, dis- missals, unemployment rising to over a million. Should the workers then seize or sit in the factories? Even if they have enough technical skill to operate them they could not finance the purchase of the necessary raw materials, payment for which would have to be in gold dollars in the case of oil. So there would be more unemployment —rising to over two million—as in the 'thirties. It would be useless for the workers to appeal for outside support. We are too big to support. We are not a Cuba. So the militant trade unions are not the workers' friends. They are merely playing at revolu- tion. Indeed, the revolutionaries are the illusionists. Perhaps even Mr Heffer will see this in time.
Previous page
