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oilfields. The public’s “profit,” that is, the social profit, would be the fictitious “plus” To develop anti-pollution techniques and as, Should the Santa Barbara channel ever have been drilled at all? Are existing safety precautions adequate to stop all clean-up of the environment that is begging methods to classify and trace back to the source various petroleum pollutants. As long as competition works and protects the public, I am for it. We have entered in a period of overconcentration of private economic power in which competition does not work, prices are collusively high, corporate inefficiency is increasing, and the environment is being ravaged. We need new contrivances that have the potential in their many facets for correcting the aggregated-problem-clusters with which our solutions these days must deal. The publicly owned oil company, producing from public lands, would be such an innovation. It’s a provocative idea and why not, in these times? We all know something is very badly wrong. We know something is wrong. We must venture down ways that are new to us. I have thought about it a good deal, and I have not come up with a single reason that convinces me that the state of Texas should not produce its own oil. There are many good reasons why it should. First there is the sound example of the TVA. This valley-wide public power system provides a national standard against which the cost and performance of private power systems can be judged. Public oil companies in the nation and the major public-land states would give us an independent standard by which to evaluate the performanceof the subsidized oil industry. THE OIL INDUSTRY has three distinct kinds of special privileges proration, import controls, and tax advantages. The government in effect puts a floor under oil prices, but will not intervene to keep them from rising. The Texas Railroad Commission’s “market demand proration” controls oil prices to the extent that the scarcity of a product affects the prices for it. Thus the pro-rating states and the federal government, \(which bans “hot oil” in as the production limitation division of an oil cartel. Because of proration, as of now government and the oil industry collude to keep oil prices high. Texas state oil officials deny by rote that they control prices, but Mr. Nixon’s cabinet task force on oil import controls last February made short work of these denials. Said this Republican report at page 88, “Under the existing quota system which fixes precisely the volume of ur crude oil, authorities in the states with effective ‘market demand prorationing’ principally Texas and Louisiana restrict production to what is needed at the prevailing price and therefore control both price levels and domestic output.” Obviously the oil import controls keep out of the country quantities of cheap oil which would depress prevailing U.S. prices. Just to be sure the oil industry doesn’t suffer from too much adversity, the government also maintains a network of tax privileges for it. Before the small reduction in depletion and certain other changes in the tax reform act, the effective income tax rate for all manufacturing was 43%; for petroleum, 21%. In the oil and gas producing business, because of depletion, somewhat under half of net profit is tax-free, year after year, as long as the production continues, regardless of actual investment. The situation of the oil industry is approaching that of the military hardware companies which do so much of their We have entered in a period in which competition does not work, prices are collusively high, corporate inefficiency is increasing, and the environment is being ravaged. business with or courtesy of the government already that they are in effect already public companies, except for ownership and prices. Opposition to a public oil company on grounds of free enterprise would be as convincing as opposition to clean beaches on behalf of the unqualified right to make money out of the earth’s ocean floor. The oil industry has sought and accepted too many special privileges from government to be able to avail itself convincingly of the continuing legitimacy of free enterprise when it is fully competitive and socially responsible. Public oil companies could and probably would undertake, and persist with, the research programs necessary to develop the national treasure lode in shale oil reserves, and possibly oil-bearing tar sands, which the oil-penetrated regulatory agencies start and then drop, start again, and now abandon. Being legislators, and many of you lawyers, you may want precedents. I can give you two for openers this afternoon. The idea of the state drilling its own oil was advanced in 1931 by a long-time president of Humble Oil and Refining Co., who was then governor of Texas, and it was authorized by a law your predecessors in this legislature passed that same year. At present, leading Republicans are interested in the subject nationally in the event of an emergency. If you want to keep up with such distinguished conservatives, you are going to have to get cracking. GOVERNOR ROSS Sterling of Texas knew whereof he spoke. He had gotten rich himself in the oil business, and as the tax administrator of Humble told me early last year, Humble had had to let Sterling quit them to become governor and establish proration. Sterling was interested by the fact that there were an estimated 20 million barrels of oil under the Sabine river, oil that was therefore owned by Texas. The Senate of the state passed a bill that would give the state the right to drill for the oil itself, or lease the river bed, or get royalty payments from owners of leases adjacent to, and draining, the river bed. Sterling endorsed the bill, saying the oil under the river “should have been developed long ago.” He preferred leasing or getting royalties from adjacent owners to the plan that the state do its own drilling, since “the state was not in the oil business,” but the AP said he told the Legislature at the same time that he believed the state could make more money out of the river-bed by drilling it itself. The bill as passed provided that the state could do its own drilling and retain all the oil if it chose. Obviously, administratively it didn’t so choose. But this is one interesting clue to the naturalness of this idea. For another authority, we need not go back so far. The majority report of the Nixon cabinet task force on oil import controls, released last February, was issued by Mr. Nixon’s Secretary of Labor, George Schultz; the Secretary of State, William P. Rogers; the Secretary of the Treasury, David Kennedy; and the Secretary of Defense, Melvin R. Laird. Wording in this report suggests that these geritlemen contemplate a government oil company or something like it during an emergency. At page 55 one finds this: “The government could obtain spare domestic productive capacity for use in an emergency by .. . conducting or financing its own exploration and development of new standby reserves as at Elk Hills. … [II t might be possible to develop large-scale emergency capacity at Naval Petroleum June 26, 1970 5