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The Monopolies Must Be Held to Account for their Violation of the Environment!

Biofuels: The Five Myths of the Agro-fuels Transition

Eric Holt-Giménez, ALAI, June 30, 2007

Biofuels. The term invokes a life-giving image of renewability and abundance – a clean, green, sustainable assurance in technology and the power of progress. This image allows industry, politicians, the World Bank, the United Nations, and even the Intergovernmental Panel on Climate Change to present fuels made from corn, sugarcane, soy and other crops as the next step in a smooth transition from peak oil to a yet-to-be-defined renewable fuel economy. Drawing its power from a cluster of simple cornucopian myths, "biofuels" directs our attention away from the powerful economic interests that benefit from this transition. It avoids discussion of the growing North-South food and energy imbalance. More fundamentally, it obscures the political-economic relationships between land, people, resources and food. By showing us only one side, "biofuels" fails to help us understand the profound consequences of the industrial transformation of our food and fuel systems – The Agro-fuels Transition.

The Agro-fuels Boom

Industrialised countries unleashed an "agro-fuels boom" by mandating ambitious renewable fuel targets. Renewable fuels are scheduled to provide 5.75% of Europe’s transport fuel by 2010, and 10 percent by 2020. The United States aims at 35 billion gallons a year. These targets far exceed the agricultural capacities of the industrial North. Europe would need to plant 70% of its farmland to fuel. The U.S.’s entire corn and soy harvest would need to be processed as ethanol and bio-diesel. Converting the bulk of their arable land to fuel crops would wreak havoc with the North’s food systems. Therefore, OECD countries are looking to the Global South to meet their fuel demands. Southern governments appear eager to oblige. Indonesia and Malaysia are rapidly expanding oil-palm plantations in an effort to supply up to 20 percent of the EU bio-diesel market. In Brazil – where fuel crop acreage already occupies a land area the size of Netherlands, Belgium, Luxembourg and Great Britain combined – the government is planning a five-fold increase in sugar cane acreage. Their goal is to replace 10 percent of the world’s gasoline by 2025.

The rapid capitalisation and concentration of power within the agro-fuels industry is breathtaking. Over the last three years venture capital investment in agro-fuels has increased eightfold. Private investment is swamping public research institutions, as evidenced by BP’s recent award of half a billion dollars to the University of California. Behind the scenes – and under the noses of most national anti-trust laws – giant oil, grain, auto and genetic engineering corporations are forming powerful partnerships: ADM and Monsanto, Chevron and Volkswagen; BP, DuPont, and Toyota. These corporations are consolidating the research, production, processing, and distribution chains of our food and fuel systems under one colossal, industrial roof.

Agro-fuel champions assure us that because fuel crops are renewable, they are environmentally friendly, can reduce global warming, and will foster rural development. But the tremendous market power of agro-fuel corporations, coupled with the poor political will on the part of governments to regulate their activities, leads us to doubt these happy scenarios. Before jumping on the bandwagon, the mythic baggage of the agro-fuels transition needs to be publicly unpacked:

Myth No.1: Agro-fuels are clean and green

Because photosynthesis from fuel crops removes green house gases from atmosphere and can reduce fossil fuel consumption, we are told fuel crops are green. But when the full "life cycle" of agro-fuels is considered – from land clearing to automotive consumption – the moderate emission savings are undone by far greater emissions from deforestation, burning, peat drainage, cultivation, and soil carbon losses. Every ton of palm oil produced results in 33 tons of carbon dioxide emissions – 10 times more than petroleum.[1] Tropical forests cleared for sugar cane ethanol emit 50 percent more greenhouse gasses than the production and use of the same amount of gasoline[2] Commenting on the global carbon balance, Doug Parr, chief UK scientist at Greenpeace states flatly, "If even five percent of biofuels are sourced from wiping out existing ancient forests, you’ve lost all your carbon gain."

There are other environmental problems as well. Industrial agro-fuels require large applications of petroleum-based fertilizers, whose global use – now at 45 million tons/year – has more than doubled the biologically available nitrogen in the world, contributing heavily to the emission of nitrous oxide, a greenhouse gas 300 times more potent than CO². In the tropics – where most of the world’s agro-fuels will soon be grown – chemical fertilizer has 10-100 times the impact on global warming compared to temperate soil applications.[3] To produce a litre of ethanol takes three to five litres of irrigation water and produces up to 13 litters of waste water. It takes the energy equivalent of 113 litres of natural gas to treat this waste, increasing the likelihood that it will simply be released into the environment to pollute streams, rivers and groundwater[4] Intensive cultivation of fuel crops also leads to high rates of erosion, particularly in soy production – from 6.5 tons/hectare in the U.S. to up to 12 tons/hectare in Brazil and Argentina.

Myth No.2: Agro-fuels will not result in deforestation

Proponents of agro-fuels argue that fuel crops planted on ecologically degraded lands will improve rather than destroy the environment. Perhaps the government of Brazil had this in mind when it re-classified some 200 million hectares of dry-tropical forests, grassland, and marshes as "degraded" and apt for cultivation[5] In reality, these are the bio-diverse ecosystems of the Mata Atlantica the Cerrado and the Pantanal, occupied by indigenous people, subsistence farmers, and extensive cattle ranches. The introduction of agro-fuel plantations will simply push these communities to the "agricultural frontier" of the Amazon where the devastating patterns of deforestation are all too well known. Soybeans supply 40 percent of Brazil’s biodiesel. NASA has positively correlated their market price with the destruction of the Amazon rainforest – currently at nearly 325,000 hectares a year. Called "The Diesel of Deforestation," palm oil plantations for bio-diesel are the primary cause of forest loss in Indonesia, a country with one of the highest deforestation rates in the world. By 2020, Indonesia’s oil-palm plantations will triple in size to 16.5 million hectares – an area the size of England and Wales combined – resulting in a loss of 98% of forest cover.[6] Neighbouring Malaysia, the world’s largest producer of palm oil, has already lost 87% of its tropical forests and continues deforesting at a rate of seven percent a year.

Myth No.3; Agro-fuels will bring rural development

In the tropics, 100 hectares dedicated to family farming generates thirty-five jobs. Oil palm and sugar cane provide 10 jobs, eucalyptus two, and soybeans a scant half-job per 100 hectares, all poorly paid. Until recently, agro-fuels supplied primarily local and sub-regional markets. Even in the U.S., most ethanol plants were relatively small, and farmer-owned. With the agro-fuels boom big industry is quickly moving in, centralising operations and creating gargantuan economies of scale. Big Oil, Big Grain, and Big Genetic engineering are rapidly consolidating control over the entire agro-fuel value chain. The market power of these corporations is staggering: Cargill and ADM control 65 percent of the global grain trade, Monsanto and Syngenta a quarter of the $60 billion gene-tech industry. This market power allows these companies to extract profits from the most lucrative and low-risk segments of the value chain, e.g., inputs, processing and distribution. Agro-fuels producers will be increasingly dependent on a tightly-organised cabal of companies for their seed, inputs, services, processing and sale. They are not likely to receive many benefits.[7] More likely, smallholders will be forced out of the market and off the land. Hundreds of thousands have already been displaced by the soybean plantations in the "Republic of Soy" a 50+ million hectare area covering southern Brazil, northern Argentina, Paraguay, and eastern Bolivia.[8]

Myth No.4: Agro-fuels will not cause hunger

Hunger, said Amartya Sen, results not from scarcity, but poverty. According to the FAO, there is enough food in the world to supply everyone with a daily 3,200-calorie diet of fresh fruit, nuts, vegetables, dairy and meat. Nonetheless, because they are poor, 824 million people continue to go hungry. In 2000, world leaders promised to halve the proportion of hungry people living in extreme poverty by 2015. Little progress has been made. The world's poorest people already spend 50-80% of their total household income on food. They suffer when high fuel prices push up food prices. Now, because food and fuel crops are competing over land and resources, high food prices may actually push up fuel prices. Both increase the prices of land and water. This perverse, inflationary spiral puts food and productive resources out of reach for the poor. The International Food Policy Research Institute has estimated that the price of basic food staples will increase 20-33 percent by the year 2010 and 26-135 percent by the year 2020. Caloric consumption typically declines as price rises by a ratio of 1:2. With every 1 percent rise in the cost of food, 16 million people are made food insecure. If current trends continue, some 1.2 billion people could be chronically hungry by 2025 – 600 million more than previously predicted.[9] World food aid will not likely come to the rescue because our surpluses will go to our gas tanks. Perversely, food aid only increases when food prices are low, not high. Instead of converting land to fuel production, what are urgently needed are massive transfers of food-producing resources to the rural poor.

Myth No.5: Better "second-generation" agro-fuels are just around the corner

Proponents of agro-fuels like to reassure "food versus fuel" sceptics by asserting that present agro-fuels made from food crops will soon be replaced with environmentally-friendly crops like fast-growing trees and switchgrass. This myth, wryly referred to as the "bait and switch-grass" shell game, helps make first generation agro-fuels socially acceptable.

The agro-fuel transition transforms land use on massive scales, pitting food production against fuel production for land, water and resources. The issue of which crops are converted to fuel is irrelevant. Wild plants cultivated as fuel crops won’t have a smaller "environmental footprint" because commercialisation will transform their ecology. They will rapidly migrate from hedgerows and woodlots onto arable lands to be intensively cultivated like any other industrial crop – with all the associated environmental externalities.

By genetically engineering plants with less lignin and cellulose, the industry aims to produce cellulosic agro-fuel crops that break down easily to liberate sugars, especially fast-growing trees. Trees are perennial and spread pollen father than food crops. Cellulosic candidates miscanthus, switch grass, and canary grass, are invasive species. Given the demonstrated promiscuity of genetically-engineered crops, we can expect massive genetic contamination. Monsanto and Syngenta will be quite pleased. Agro-fuels will serve as their genetic Trojan horse, allowing them to fully colonise both our fuel and food systems.

Any technology with potential to avoid the worst impacts of global warming must be commercially viable on a global scale within the next 5-8 years. This is highly unlikely with cellulosic ethanol, a product that has thus far demonstrated no carbon savings. Making it a green, viable product is not simply matter of scaling up existing technology, but of major breakthroughs in plant physiology that permit the economically efficient breakdown of cellulose, hemi-cellulose, and lignin. The agro-fuel industry is either betting on miracles or counting on taxpayer bail-outs. Faith in science is not science. Selective faith in second-generation fuel – rather than working to improve existing solar, wind, or conservation technologies – is bias in favour of the highest bidder.

The Twin is Dead, Long Live the Twin

The International Energy Agency estimates that over the next 23 years, the world could produce as much as 147 million tons of agro-fuel. This will be accompanied by a lot of carbon, nitrous oxide, erosion, and over 2 billion tons of waste water. Remarkably, this fuel will barely offset the yearly increase in global oil demand, now standing at 136 million tons a year – never mind offsetting any of the existing demand. Is this worth it?

The agro-fuel transition closes a 200-year chapter in the relation between agriculture and industry that began with the Industrial Revolution. Then, the invention of the steam engine promised an end to drudgery. However, industry’s take-off lagged until governments privatised common lands, driving the poorest peasants out of agriculture and into urban factories. Peasant agriculture effectively subsidised industry with both cheap food and cheap labour. Over the next 100 years, as industry grew, so did the urban percentage of the world’s population: from 3% to 13%. Cheap oil and petroleum-based fertilizers opened up agriculture itself to industrial capital. Mechanisation intensified production, keeping food prices low and industry booming. The next hundred years saw a three-fold global shift to urban living. Today, the world has as many people living in cities as in the countryside. [10] The massive transfer of wealth from agriculture to industry, the industrialisation of agriculture, and the rural-urban shift are all part of the "Agrarian Transition," the lesser-known twin of the Industrial Revolution. The Agrarian/Industrial twins transformed most of the world’s fuel and food systems and established non-renewable petroleum as the foundation of today’s multi-trillion dollar agri-foods complex.

The pillars of the agri-foods industry are the great grain corporations, e.g., ADM, Cargill and Bunge. They are surrounded by an equally formidable phalanx of food processors, distributors, and supermarket chains on one hand, and agro-chemical, seed, and machinery companies on the other. Together, these industries consume four of every five food dollars. For some time, the production side of the agri-foods complex has suffered from agricultural "involution" in which increasing rates of investment (chemical inputs, genetic engineering, and machinery) have not increased the rates of agricultural productivity – the agri-foods complex is paying more and reaping less.

Agro-fuels are the perfect answer to involution because they’re subsidised, grow as oil shrinks, and facilitate the concentration of market power in the hands of the most powerful players in the food and fuel industries. Like the original Agrarian Transition, the present Agro-fuels Transition will "enclose the commons" by industrialising the remaining forests and prairies of the world. It will drive the planet’s remaining smallholders, family farmers, and indigenous peoples to the cities. It will funnel rural resources to urban centres in the form of fuel, and will generate massive amounts of industrial wealth.

Unfortunately, the agro-fuels transition suffers from a congenital flaw: its fraternal twin is dead. There is no new Industrial Revolution. No expanding industrial sector waits to receive displaced indigenous communities, smallholders and rural workers. There are no production breakthroughs poised to flood the world with cheap food. This time, fuel will not subsidise agriculture with cheap energy. On the contrary, fuel will compete with food for land, water and resources. Agro-fuels collapse the industrial link between food and fuel. Taken to its extreme, agro-fuel will be used to grow agro-fuel – a thermodynamically pathetic proposition. The inherent entropy of industrial agriculture was invisible as long as oil was abundant. Now, food and fuel systems must shift from a savings to a checking account. Agro-fuels lead us to overdraw. "Renewable" does not mean "limitless." Even if crops can be replanted, land, water, and nutrients are limiting. Pretending otherwise serves the interests of those monopolising those resources. Agro-fuel’s appeal lies with its potential to prolong the oil economy. With an estimated one trillion barrels of oil reserves left on the planet, $100-a-barrel oil is not far off.[11] The higher the oil prices, the more ethanol costs can rise while remaining competitive. Herein lays the contradiction for second-generation agro-fuels: as oil becomes more expensive, first generation agro-fuels become more lucrative, discouraging the development of second-generation fuels. If oil reaches $80 per barrel, ethanol producers could afford to pay over $5 per bushel (~127 kg.) for corn, making it competitive with sugar cane as well. The planet’s energy crisis is potentially an $80 – 100 trillion dollar bonanza for food and fuel corporations. No wonder we are invited to consume our way out of over-consumption.

Limits – not incentives – must be placed on the agro-fuels industry. It is unconscionable for the North to shift the burden of over-consumption to the Global South simply because the tropics have more sunlight, rain and arable land. If agro-fuels are to be forest and food friendly, clearly the grain, cane, and oil-palm industries need to be regulated, and not in piecemeal fashion. Strong, enforceable standards based on limiting land planted to agro-fuels are urgently needed, as are anti-trust laws powerful enough to prevent the corporate concentration of market power in the industry. Sustainable benefits to the countryside will only accrue if agro-fuels are a complement to territorial plans for sustainable rural development, not the centrepiece.

Building Food and Fuel Sovereignty

The Agro-fuels Transition is not inevitable. There is no reason to sacrifice the possibility of sustainable, equitable food and fuel systems to an industrial strategy that compromises both. Many successful, locally-focused, energy-efficient and people-centred alternatives are presently producing food and fuel in ways that do not threaten food systems, the environment, or livelihoods. The question is not whether ethanol and bio-diesel per-se have a place in our future, but whether or not we allow a handful of global corporations to determine our future by dragging us down the dead end of the agro-fuels transition. To avoid this trap we have to abandon the cornucopian myths left over from the age of abundant oil. We must dare to envision a different, steady-state agrarian transition built on re-distributive land reform that re-populates and stabilises the world’s struggling rural communities. We need to rebuild and strengthen our local food systems, and ensure conditions for the local re-investment of rural wealth. Putting people and environment – instead of corporate mega-profits – at the centre of rural development requires food sovereignty: the right of people to determine their own food systems.

In both the Industrial North and the Global South, hundreds of thousands of producers and consumers are actively organising for their right to healthy and culturally appropriate food produced through ecologically sound and sustainable methods. They are also re-building local food systems architecture to ensure that most of the wealth and benefits of food systems accrue locally – not in the distant corporate coffers of the agri-foods giants. They are holding agri-foods corporations accountable for the externalities that their industry imposes on taxpayers in the form of hunger, environmental destruction and poor health from cheap, processed foods. Social movements for land reform, indigenous rights, farmer-to-farmer sustainable agriculture, ethical trade, farmers’ markets, community-supported agriculture, inner-city gardens and neighbourhood-food systems development, are a few examples of the widespread, multi-faceted efforts for food sovereignty. Organisations like international Via Campesina, Brazil’s landless movement (MST), the Federation of Southern Cooperatives of African-American Farmers, and the Community Food Security Coalition, are transforming the social will from these rural and urban movements into political will – the formula for social change.

Food Sovereignty movements are already squaring off with the agro-fuels boom. When U.S. president George Bush arrived in Brazil to establish an ethanol partnership with Lula, 700 women from Via Campesina greeted him by occupying Cargill’s sugar mill in Sao Paulo in protest. But derailing the agro-fuels juggernaut entails changing the Agro-fuels Transition from an agrarian transition that favours industry to one that actually favours rural communities – a transition that does not drain wealth from the countryside, but that puts resources in the hands of rural peoples. This is a far-reaching project. A good nest step would be to launch a pro-active, global moratorium on the expansion of agro-fuels. Time and public debate is needed to assess the potential impacts of agro-fuels, and to develop the regulatory structures, programs, and incentives for conservation and food and fuel development alternatives. We need the time to forge a better transition – an agrarian transition to food and fuel sovereignty.

Eric Holt-Giménez PhD is Executive Director, Food First/Institute for Food and Development Policy

NOTES

1.Delft Hydraulics in George Monbiot, "If we want to save the planet, we need a five-year freeze on biofuels" The Guardian, 3/27/2007

2. David Tilman and Jason Hill, Washington Post, 3/25/07

3. Miguel Altieri and Elizabeth Bravo, "The ecological and social tragedy of biofuels," 5/1/07, http://www.foodfirst.org ,

4. Ecologist, May, 2007

5. Plano Nacional de Agroenergia 2006-2011, In Camila Moreno, "Agroenergia X Soberania Alimentar: a Questão Agrária do século XXI", 2006

6.The Ecologist, Ibid

7. Annie Dufey, "International trade in biofuels: Good for development? And good for environment?" International Institute for Environment and Development, 2006.

8. Bravo, E. 2006, Biocombustibles, cutlivos energeticos y soberania alimentaria: encendiendo el debate sobre biocommustibles. Accion Ecologica, Quito, Ecuador

9. C. Ford Runge and Benjamin Senauer, "How Biofuels Could Starve the Poor", Foreign Affairs, May/June 2007

10. "The World Goes to Town," The Economist, 5/11/07

11. Caroline Lucas Mep, et al "Fuelling a Food Crisis: The impact of peak oil on food security", The Greens/European Free Alliance, European Parliament, 12/06

http://www.alainet.org/active/18240<=en

Workers and Means of Production

K.C. Adams, The Marxist-Leninist Daily, Daily On-Line Newspaper of the Communist Party of Canada (Marxist-Leninist), February 21, 2008

During October, November and December of 2007, twenty-three thousand nine hundred Air Canada full-time equivalent workers produced 14.715 billion passenger seat miles plus cargo space. The airline industry describes its commodity in terms of each mile travelled by one seat, an "available seat mile" (ASM). The 14.715 billion ASMs plus cargo space represent the total Air Canada unsold (non-realised) social product for the three months. Of this social product Air Canada managed to realise (sell) 11.446 billion ASMs (77.8%).

The total social product is the result of two essential factors: workers and socialised means of mass production. These two factors came into being in conditions where the mediaeval block to science and technology, especially with regards to their application to mass industrial production was overcome. These two essential factors thrive where an organised conscious movement develops against monopoly tyranny and for enlightenment leading to modern definitions in all political, economic and social affairs and activation of the human factor/social consciousness and the humanisation of the natural and social environments.

Air Canada Workers

The first essential factor is the collective work-time of the 23,900 full-time equivalent workers. This total work-time represents the value added by Air Canada workers during the 4th quarter to create a social product of 14.715 billion ASMs plus cargo space. This added-value is the source of all revenue from which workers make their claim for wages and benefits, owners of Air Canada equity make their claim for dividends and retained earnings, owners of Air Canada debt make their claim for interest and fees, owners of land make their claim for rent, executive managers make their claim for big payoffs, and governments make their claims in taxes. This added-value from the collective work-time of the working class is the indispensable element necessary to maintain workers, their families, the society and its institutions, in particular its social programmes, and to expand the socialised economy and build new means of production.

Under the capitalist system this added-value found within the social product must first be realised (sold) for its use-value to be unlocked and utilised and its potential revenue distributed as claims by workers, owners of capital and governments.

Socialised Means of Mass Industrial Production

The second essential factor to create social product is the existing socialised means of mass industrial production. The most important of these for Air Canada include the 340 airplanes in the operating fleet, the availability and delivery during the 4th quarter of 905 million litres of fuel, the infrastructure of all airports utilised, and Air Canada buildings, equipment and tools. The portion of these means of production consumed during the 4th quarter (transferred-value) represents the total value transferred from existing means of production to the new social product, the 14.715 billion ASMs plus cargo space. (See Note 1) Unlike added-value, which is new value added to the economy according to the work-time of Air Canada workers, transferred-value within the social product is neutral with regard to value. It transfers existing value from the means of production without adding any new value. Upon realisation (sale of the commodity), transferred-value does not give rise to any revenue to be claimed by owners of capital, governments or workers, as the amount received for realised transferred-value must be used to pay for the consumed means of production. Revenue for distribution to claimants only comes from realised added-value. (See Note 2) Transferred-value neither produces additional value beyond what already exists and is consumed in production nor is it the source of revenue. The entire transferred-value from the means of production now found within the new social product (14.715 billion ASMs plus cargo space) must be paid and then replaced with an equivalent value if production is to be extended. Under the capitalist system, and similar to added-value, the transferred-value found within the social product must first be realised (sold) for its transformed use-value to be unlocked and utilised and an equivalent value returned to the means of production as contracted. However, unlike added-value the entire transferred-value must be paid and replaced whether it is realised or not. Air Canada sold only 77.8 per cent of its 4th quarter social product (11.446 billion ASMs) but 100 per cent of transferred-value within the full 14.715 billion ASMs must be paid. To do so Air Canada must make up the difference from realised added-value leaving less to divide amongst the claimants (workers, governments and owners of equity, debt and land). This is further complicated through the rules of capitalism that demand owners of debt and land be paid their contracted amount on threat of bankruptcy regardless of the fact that realised added-value has been reduced.

Transferred-Value from Fuel Consumption

Air Canada paid $610,875,000 for 905 million litres of fuel transferred to the social product (14.715 billion ASMs plus cargo space). The entire amount for fuel must be paid even though only 11.446 billion ASMs were realised (sold). Also, an equivalent amount of fuel must be found to replace the 905 million litres consumed during the quarter if production of ASMs is to continue. The largest item of transferred-value by far is fuel consumption, which interestingly is roughly equal (in money-value) to the entire amount of realised added-value created by Air Canada workers and consequently greater than the amount claimed by workers in "wages, salaries and benefits." The actual intrinsic-value of the 905 million litres of fuel in average work-hours is not revealed. The intrinsic-value (average work-hours) of transferred-value is almost never shown or discussed in capital-centred accounting. (See again Note 1) Fuel consumption is followed (in terms of money-value) by transferred-value from the wear and tear on airport infrastructure and airplanes, and supplies ("airport and navigation fees" and "aircraft maintenance, material and supplies"). These transferred-values and others can be found in the financial report under "operating expenses" but vigilance is required as capital-centred accounting lists claims on realised added-value by all except owners of equity capital, as "operating or non-operating expenses." (See Note 3) Also, mostly money-equivalents are used, which are very unreliable given monopoly manipulation of prices and the instability of currencies (exchange rates and inflation).

Social Product

Social product consists of added-value and transferred-value coming from the two essential factors of production: the working class and means of production, both of which arise from Mother Earth and depend on her continued well-being. The two essential factors exist within a society where science and applied technology have reached a level capable of mass industrial production. To sustain such a society without crises and war requires conscious participation of all individuals within the society in acts of finding out in the areas of politics, economics, science, technology and culture, especially culture in ideological and social forms. If for whatever reasons the masses of people are blocked from conscious participation in individual acts of finding out, the socialised economy and society cannot be sustained and will collapse in crisis, unending conflict and war.

Social product is the sum of added-value from live workers at their level of production plus transferred-value from existing social product in the form of means of production. The origin of means of production is the raw bounty of Mother Earth transformed by workers. The process of transforming the bounty of Mother Earth reached a new quality of socialised mass industrial production roughly two hundred years ago and has since spread over the entire world through extended reproduction. The means of production have been modernised and socialised but the relations among those humans engaged in production and distribution are stuck in a mediaeval past of private ownership of petty production. This is the fundamental problem to be resolved. The socialised economy requires socialised relations of production based on modern definitions.

Transferred-Value

Transferred-value is not recognised as a category under capital-centred accounting. Capitalists and their apologists lump together all expenditures during the production process, except those to the owners of equity, under a self-serving category of "costs of production." However and quite to the contrary, the modern socialised economy does not have an economic category called "costs of production." The entire economy exists as a seamless whole or single sheet of steel. It requires both workers producing added-value, and already produced means of production transferring a portion of their existing value to social product. Some of this social product goes to the service industries, in particular the delivery of education and healthcare, where social product sustains service workers and provides the material conditions for these crucial sectors to operate.

Neither added-value nor transferred-value is a cost to the economy. Both are essential for social product to be created, as are the crucial service sectors.

For example with Air Canada and other airlines, airport infrastructure in its formation required construction workers producing added-value, and earthmovers and other machines and raw material transferring some or all of their existing accumulated-value. The same is true for the 905 million litres of fuel, which transferred its accumulated-value to Air Canada's 14.715 billion Available Seat Miles (ASMs) plus cargo space. Production of fuel requires oil workers producing added-value and oil rigs, other machinery and existing fuel transferring all or part of their accumulated-value. This is called extended reproduction of the socialised economy. It begins from low productivity, fewer means of production, and develops progressively to more means of production and higher productivity. This process can occur if added-value is mobilised and reinvested in the economy for extended reproduction. Development of the socialised economy requires the hard work and conscious participation of the working class and its allies. The reality has been far from consistently progressive and smooth, as the social classes that have seized power by force divert added-value to their own narrow interests, war and luxuries causing crises and wrecking. Those who have usurped power by force in the most powerful countries also steal added-value from the weaker countries, which they use to build powerful militaries and to bribe certain leaders of the working class and intelligentsia to ally themselves politically and ideologically with the owners of monopoly capital.

Breaking Apart the Single Sheet of Steel

Those social classes that have seized power by force violently break the socialised economy into privately controlled competing parts. Owners of capital introduce the concept of "cost of production" into the socialised economy for self-serving reasons: to perpetuate their existence as a social class even that outmoded class no longer serves any purpose; to facilitate claiming and taking added-value out of the economy based on obsolete notions of private ownership to build competing empires; and, to use this added-value for self-serving anti-social reasons that wreck society such as war, luxury, bribery, corruption and reckless speculation.

The obsolete concept of "cost of production" obscures the central decisive leading role of the working class in all aspects of modern society. It denies the working class and society generally the full use of the added-value it has created to invest in social programmes and build a self-reliant pro-social economy and engage in trade with the rest of the world based on principles of mutual benefit and support and non-interference in the national sovereignty of the trading partners.

Because owners of capital control competing parts of the socialised economy and are fixated on protecting and expanding their private wealth, power and empire, they are compelled by their egocentric self-interest to categorise all transferred-value and almost all added-value as "costs of production." Only the realised added-value that falls to them escapes their wrath and name calling. This distortion justifies in the accounts their self-righteous attacks on the working class, means of production and capitalist competitors as "costs" to the owners of equity. See they declare with tears in their eyes, see how much our workers and means of production cost us in operating expenses, reducing what we rightly require as private profit because after all, we own the company! (See Note 4)

ExxonMobil

ExxonMobil transfers fuel to Air Canada. The owners of ExxonMobil equity and debt are not impressed with Air Canada's social product of 14.715 billion ASMs plus cargo space, which becomes part of the aggregate Canadian social product. ExxonMobil is very focussed on payment for the fuel it delivers. It has its own narrow monopoly interests to grind, which demand payment for its portion of the 905 million litres of fuel at prices mostly dictated by the oil monopolies. The production of fuel is owned and controlled separately from the production of ASMs and is in competition with other sectors and monopolies to seize the most Canadian realised added-value it can at the best prices for itself. ExxonMobil does not see itself as an integral part of the overall Canadian socialised economy but as a singular competing element determined to serve its own private interests not just in Canada but globally. Its allies in Canadian politics and the economy are transitory as they are based on self-interest. As long as Air Canada pays for the fuel it is an ally. As long as a particular political force serves ExxonMobil it is an ally and rewarded.

The objective existence of ExxonMobil as a private monopoly requires that what it produces and distributes eventually must be sold to another private monopoly, government or individuals or it would cease to exist. The source of the raw energy, the workers to transform the raw material and deliver it and the markets to realise the social product must be within the sphere of influence of the ExxonMobil Empire. This requires political and economic allies that serve its interests. It conspires to wring high prices from other competing centres of capital and people whether or not this damages the whole. It corrupts politicians to seize with impunity the bounty of Mother Earth, workers and markets from wherever on the globe it has the power to do so, paying only lip service for the social and natural consequences. It cannot and does not want to see itself as part of a seamless whole or a single sheet of steel because that would require losing its existence as a privately owned competing empire within the whole. It could care less what the fuel is used for or where it comes from; it simply wants to extract and refine it as cheaply as possible and be paid for its fuel at the best possible price. After all, that is seen and upheld as ExxonMobil's monopoly right of private ownership, guaranteed in practice not only with bribery and corruption of local officials but with the military might of US imperialism. That is the basis for its contradiction with the Canadian socialised economy and people, and its present brutal conflict with the socialised economy and people of Venezuela and other sovereign nations and peoples.

ExxonMobil does not merely transfer fuel to Air Canada as if transferring a product within its own Empire; it sells the fuel to another competing part of the whole. The buyer sees the fuel as alien and accounts for it as an antagonistic cost of production. In this way, the owners of ExxonMobil equity and debt receive payment for their privately owned fuel, use some of it to pay their own "costs of production," use some of it to meet the claims of ExxonMobil workers and government taxes, and keep what is left for their own private use either to consume personally or to invest in activities the owners of capital deem best serves their narrow private interests.

This division of the Canadian socialised economy into competing privately owned parts is a source of economic crises, wars, lack of spending on social programmes, uneven development and other problems. Look at the bankruptcies in the airline industries in Canada and the United States including Air Canada, and the incessant demand and propaganda for concessions from workers. This all stems from the obsolete division of the socialised economy into privately owned and controlled competing parts.

A self-serving necessity arising from private ownership is the labelling of all transferred-value and the added-value claimed by workers, governments and competing owners of capital as antagonistic "costs of production," which of course "must be reduced for the good of the monopoly." For what good or end does the particular monopoly insist requires reducing other claims on added-value? To make it even more competitive and subsequently even more damaging to the socialised economy!! The worst thing for the working class and its society is to make the monopolies even more powerful and competitive. That ends up in more exploitation, crises, wars and uneven development. Why do Canadians want even more powerful monopolies? So they can use their greater resources to smash workers' standard of living, deny all responsibility for workers' healthcare and pensions, and reduce society to merely an instrument to pay the rich and protect their bloated private property? The working class perspective demands "stop paying the rich" in all its forms. The claims of the rich on realised added-value, as private profit, interest, fees and rent must be reduced and finally eliminated altogether. Those claims of the rich are anachronistic; they disrupt and block the functioning of the socialised economy and advancement of society. Only two claims on realised added-value can be justified in the modern world: the claims of the working class and those of society to enhance and guarantee its institutions, social programmes and the extended reproduction of a self-reliant socialised economy.

Workers have two great responsibilities to themselves and their society. First is to fight for the rights of all and for increased investments in social programmes, and to resist all attempts to reduce their standard of living and security of employment. Second is to organise into a mass Communist Party and prepare their class subjectively to seize political power and make the socialised economy a single sheet of steel serving the public good and society thus eliminating the obsolete division of their modern economy into privately-owned and controlled competing parts.

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Note 1

One of the most serious shortfalls of capital-centred accounting is the refusal to reveal the intrinsic-value of social product. Intrinsic-value is the total average work-hours contained in social product. The 905 million litres of fuel is the social product but what is its intrinsic-value in average work-hours? Money-value in US or Canadian dollars is the market value in currency, which is a very poor substitute for intrinsic-value as it is subject to monopoly manipulation of prices, constantly changing currency exchange rates, and inflation resulting from putting more currency into circulation than required by the aggregate social product and its rate of circulation. Worker-centred accounting would as its most important task calculate the intrinsic-value (average work-hours) of all social product. For example, it would calculate the average work-hours required to produce Air Canada's 14.715 billion ASMs. This calculation would reveal the intrinsic-value of transferred-value within those ASMs (fuel, wear and tear of airplanes etc.) and the intrinsic-value of the added-value produced by the 23,900 (full-time equivalent) Air Canada workers. This would show how much the socialised economy must contribute in transferred-value to create the necessary conditions for air travel and the direct added-value of airline workers. It would also show how much the socialised economy benefits from the added-value created by airline workers and the division of that added-value among the various claimants (workers, private owners of equity, debt and land, executive managers and governments). A future article will attempt to give some feel of this type of accounting for Air Canada using the more detailed full year accounts although it will not be entirely accurate as it will have to use ratios based on values expressed in money. (Intrinsic-value is not the same as price of production, which is expressed in a money equivalent or money-value. The law of value under capitalism requires variations of prices of production, which then directly influence market prices according to the rate of return on invested capital in different sectors of the economy. However the law of value is routinely violated through monopoly manipulation of markets and prices, which is a major source of disruption and uneven development in economies globally.)

Note 2

The claims of owners of capital are made on realised added-value. In industrial production generally the proportion of transferred-value in relation to added-value rises as productivity increases. A direct consequence of this is less direct work-time hours per unit of social product, which means less added-value per unit of social product and greater transferred-value from means of production. In the case of Air Canada, the amount of transferred-value per unit of social product (ASM) already exceeds that of added-value. This phenomenon under capitalism directly weakens the rate of return for invested capital. This leads owners of capital to seek greater investment returns in the realm of circulation and risky parasitic schemes for big scores without consideration of the negative overall consequences to the economy, society or nature. Their narrow private self-interest actively blocks and negates social consciousness and responsibility and encourages egocentrism and corruption.

The phenomenon of a rising proportion of transferred-value in social product will be discussed in more detail in a subsequent examination of the ratio between transferred-value and added-value at Air Canada and the airline industry generally. This phenomenon forms part of the reasons for repeated economic crises and bankruptcies. This trend towards greater transferred-value compared with added-value per unit of social product is implacable and under monopoly capitalism generates negative consequences for the owners of capital without their conscious realisation. The truly positive features of this trend towards productivity can only be fully utilised for the benefit of humanity and society with the harmonisation of socialised production with socialised ownership.

Note 3

The perspective of capitalism is based on private ownership of the means of production. The organisation of the economic accounts follows from the narrow outlook of the owners of capital who first and foremost look after their own private interests, present as negative the interests and claims of workers, governments and competitors, and mostly ignore any bad social or natural consequences, especially the requirement to at least restore or put back into the socialised economy and nature what they have removed or destroyed. Owners of monopoly capital divide the socialised economy into competing parts on the basis of private ownership and control. The ownership group at Air Canada owns airplanes and other means of production necessary for an airline to function and mobilises workers from the labour market to produce and sell ASMs. The division of the socialised economy into privately owned competing parts puts owners at the centre of their world while all others are seen as servants of that centre and beholden to its monopoly power and right. This gives rise to accounts that view the working class and the means of production as "operating expenses," and interest, fees, rent and taxes as "non-operating expenses." Every input and claim, other than that of the owners of equity, is designated as a negative "cost" to the centre of capital ownership.

The working class perspective is based on collective ownership of the means of production within a definite geographic and political space and society for which workers and their allies are socially responsible. This outlook views the socialised economy as the unity of workers and their means of production in harmony with Mother Earth and all humanity. The organisation of accounts at each distinct level of production and distribution is based on calculating the sum total of transferred-value combined with added-value equalling the new social product. The claims of the working class and society on the added-value and the needs of the means of production for their extended reproduction must be consciously arranged and calculated.

For workers at a productive unit such as Air Canada, their concerns include the added-value they produce from their work-time and from which they claim their wages, benefits and pensions; the claim of society on that added-value to maintain its institutions and social programmes; and, the claim on that added-value to extend reproduction of the socialised economy and the necessary means of production required to produce additional ASMs. For example in a practical sense, Air Canada workers would be concerned with the fuel necessary to produce a certain amount of social product (ASMs), to guarantee fuel availability and the well-being of fuel workers and existence of the social and natural conditions necessary to transform raw material into airplane fuel in a socially responsible manner. Each level and aspect of the socialised economy and surrounding society is necessary and necessarily must become the concern of every individual worker and part of every worker's social consciousness. One for all and all for one in practice. The social product produced by fuel workers forms part of the production of ASMs once it is transferred and consumed. Each productive unit forms part of a seamless whole, a single sheet of steel. There are no costs or competing parts. The allocation of work-time to produce means of production such as airplanes or items for individual consumption such as ASMs is a matter for the working class and its institutions to decide in a socially conscious manner. It is the reaffirmation of the human factor as master of its means of production and social product on the basis of social consciousness. Before the emergence of social classes and private ownership of the means of production, humanity instinctively devoted a certain amount of work-time to produce means of production such as stone tools or bows and arrows. These means of production greatly increased the consistent availability and amount of food and other necessities allowing humans a measure of relief from the vagaries of nature. The reaffirmation of the human factor as master of its means of production free from the interference and control of private ownership and antagonistic class divisions is accomplished by the working class and its allies in the fight for the rights of all and for political power with full consciousness of the social and natural responsibilities to direct the economy and serve and protect the entire collective of humanity and Mother Earth on which all human beings depend.

Note 4

US Steel exemplifies this retrogressive notion of reducing the essential factors of the socialised economy, workers and means of production, to "costs of production." US Steel accounts, as a "cost of production" to itself, iron ore pellets produced in US Steel's own iron ore mines. This process has even entered the popular vernacular as "buying product from itself at cost." What is this "cost" to itself? It is the accumulated-value of the iron ore pellets, which is the sum of their transferred-value from the means of production and added-value from miners minus only the amount of added-value claimed by the owners of US Steel. The capitalist ideological grip is so strong that the owners of US Steel view almost the entire material existence of the iron ore pellets as alien and an antagonistic cost of production even though their own facilities mined and refined them and cost them nothing. Contrary to capitalist dogma, the iron ore pellets represent new social product complete with added-value created by hardworking miners, which cost owners of capital nothing. Some of that added-value, which appears as if by magic in the minds of the rich, will eventually fall undeservingly into the sweaty outstretched hands of US Steel owners of capital.

The full accumulated-value of the social product (iron ore pellets) is transferred internally to US Steel mills to be transformed into flat-rolled steel to be sold or sent to another US Steel mill to be manufactured into tubular steel.

The transferred-value within the iron ore pellets returns to US Steel when the steel is realised (sold). Also, claims on the added-value within the iron ore pellets can then be satisfied. Those claims are from miners, owners of US steel equity, debt and land and governments. Owners of US Steel happily pocket their profit from the pellets! Where is the "cost" to them? It resides in their furtive anti-working class self-centred backward imagination.

Workers can learn one big issue from this passing along of social product within empires, which some call vertical ownership. If the monopoly capitalist system is to function, sooner or later the social product has to be realised (sold) to another monopoly, government or individual. When realisation of social product does not take place sufficiently to meet the assorted claims on added-value then crisis breaks out. And unfortunately for the people, realisation of social product is far from certain, occurring as it does in a climate of ferocious monopoly competition and war. That is a problem the working class can solve by challenging monopoly right with its own nation-building project based on a self-reliant pro-social economy without private monopolies and their reckless self-serving competition.

US Oil Company in Economic Aggression against Venezuela

The Decision of the British Courts in the Exxon Case Is Illegal

Chavez Calls for Defence of Oil Sovereignty

Call for Exxon to Resume Arbitration Process

Fact Sheet

Arbitration between ExxonMobil and Venezuela

Embassy of Venezuela in US, February 18, 2008

Despite Venezuela's proposal for an amicable solution and an ongoing international arbitration process, ExxonMobil has resorted to aggressive, unilateral and coercive measures to disqualify any proposed solution, something that could be described as "judiciary terrorism". Venezuela's intention has been to bring illegal oil projects from the rich Orinoco Oil Belt into its legal framework and thus stop the continued transferring of resources needed for social development from the People of Venezuela to the coffers of large foreign multinational companies. This has been accepted by all oil companies operating in Venezuela, except ExxonMobil.

The Orinoco Oil Belt and the Slow Privatisation of Natural Resources

The Orinoco Oil Belt is considered the largest hydrocarbons deposit on the planet, containing up to 1.4 trillion barrels of heavy crude oil. It will allow Venezuela to become the country with the largest proven crude oil reserves in the world – 315 billion barrels of oil – by the year 2009. With a total production cost of around $ 7 per barrel of light synthetic crude oil, this area represents one of the most profitable fields in the world, particularly when compared with the Canadian Tar sands developments or with any offshore oil developments.

In the 1990s, through a series of dubious legal measures intended to reverse Venezuela's 1975 nationalisation of its oil industry, private oil companies began to explore for oil in different parts of the country including in the Orinoco Oil Belt. At that time, royalties paid by the foreign companies amounted to only 1% of the value of oil extracted from the ground. Furthermore, all contracts intended to subordinate the sovereignty of the State to foreign institutions and make PDVSA a sort of hostage of foreign international oil companies, thus allowing them to manipulate the Venezuelan State.

The 2001 Hydrocarbons Law

This situation was corrected when the Hydrocarbons Law of 2001 ratified Venezuelan sovereignty over its natural resources. The law also mandated adjustments to all strategic association contracts while allowing private investment in the oil industry. Under the new contracts, the state maintains majority ownership in the projects and the tax and royalties incomes were increased.

The adoption of this new legal framework led to an amicable negotiation process in which 30 out of 32 operating agreements were transferred into new mixed companies.

It was following decree number 5,200, issued by the National Assembly of the Bolivarian Republic of Venezuela on February 27th 2007 and consistent with the new Hydrocarbons Law of 2001, that Petróleos de Venezuela (PDVSA), Venezuela's national oil company started the negotiations that included the new ownership structure of the projects of the Orinoco Oil Belt.

Compensation Talks and Negotiations in 2007

Last July all companies that participated in the Orinoco Oil Belt were invited to negotiate with full transparency a smooth hand-over of equity stakes so as to make PDVSA the majority stakeholder as provided under Venezuelan law. While Chevron, Statoil, Total, ENI, BP and Sinopec agreed to the handover, only ExxonMobil and ConocoPhillips chose to reject the terms of the new joint ventures.

Paradoxically, Exxon-Mobil had been among the first companies to sign the memorandums of understanding that allowed Venezuela to assume majority equity stakes in the Orinoco Belt.

Chevron, Statoil, Total, ENI, BP and Sinopec all signed agreements transferring 60 to 83% of their oil interests to the Venezuelan national oil company PDVSA. In compensation talks, Total (France) and Statoil-Hydro ASA (Norway) received remuneration of $ 1.1 billion from PDVSA in exchange for majority ownership of the Sincor project in the Orinoco Oil Belt.

ExxonMobil has not written down the value of its 41.7% stake of the Orinoco Oil Belt field from its financial reports, which only represented approximately 2% of the company's worldwide production. While the company has not announced the compensation it is expecting to receive from this field, experts estimate it at $ 750 million.

Since an agreement for compensation has not been reached, ExxonMobil and ConocoPhillips resorted to international arbitration, an option that was provided in the initial contract. Exxon's dispute revolves around two joint ventures: the Cerro Negro project and the La Ceiba project. In September, Exxon affiliates filed an arbitration claim with the International Centre for Settlement Disputes against the Venezuela government seeking the fair market value of the expropriated investments.

Negotiations have however continued with ConocoPhillips so as to arrive to a fair agreement. ExxonMobil preferred to resort to more aggressive, unilateral and coercive methods, thus rejecting any attempts made by Venezuela to find an amicable solution.

It is important to note that last year PDVSA purchased 99% of the Cerro Negro project bonds at a cost of $ 501 million as well as the Hamaca project's debt of $ 129 million.

Present Situation

Despite all efforts made by Venezuela to arrive to a fair negotiated settlement, using the legal and procedural tools provided in the contract, ExxonMobil decided to mobilise an additional legal battle against the Bolivarian Republic of Venezuela and PDVSA, an act that showed lack of respect for the terms of international arbitration.

ExxonMobil introduced three lawsuits, one in an American court, one in a British court, and one in a Dutch court against PDVSA in an attempt to exercise legal pressure on Venezuela. All of them have issued temporary precautionary measures against PDVSA and are awaiting PDVSA's response.

According to ExxonMobil spokespersons, these measures are taken under the premises that PDVSA will not dispose of enough funds to compensate ExxonMobil after a settlement is decided in the arbitration courts.

The measures are, however, made unnecessary by the following facts:

* Venezuela has never defaulted in the payment of any of its debts, including in previous nationalisation processes.
* Venezuela has reduced its foreign public debt from over $31 billion in 2004 to $25.9 billion at the end of 2007.
* PDVSA's current global assets are estimated at approximately $107 billion.
* PDVSA's Debt to Equity ratio is one of the lowest worldwide for an Integrated Oil Company of the size of the Venezuelan enterprise.
* If taking into account the Orinoco Oil Belt, Venezuela has the largest crude oil reserves in the world.
* PDVSA's credit rating has not been affected, even with these announcements.

US Court: This court accepted the temporary freezing of $ 315,000,000 from a fund that receives the income from the Chalmette refinery, a 50-50 joint venture between ExxonMobil and PDVSA.

British and Dutch Courts: Both courts temporarily froze PDVSA's assets with up to a value of $12 billion.

Venezuela and PDVSA have continuously proven their respect for signed contracts and international law and will therefore continue to strive for a fair settlement in the arbitration cases.

The announcement of the cessation of business relations with ExxonMobil is the result of that company's aggressive and coercive behaviour against the Bolivarian Republic of Venezuela. However, the decision applies only to spot-market purchases, and does not affect already established supply contracts.

The value of the precautionary action is far higher than what ExxonMobil could hope to receive in compensation for the project it abandoned in the Orinoco Oil Belt. Moreover, the Bolivarian Republic of Venezuela rejects suggestions that PDVSA operations would be negatively affected by ExxonMobil's attempt to freeze its assets, or by other moves to undermine Venezuela's sovereign management of natural resources to benefit the people of Venezuela.

ExxonMobil's real intentions are not very clear, but they have generated a situation of uncertainty in the global oil market, which has led to an increase in oil prices. They have also caused economic harm to Venezuela, generating a situation that affected its Sovereign bonds.

Lastly, and certainly most importantly, Venezuela demands that ExxonMobil respect international law as dictated by the International Centre for Settlement of Investment Disputes.

Embajada de la República Bolivariana de Venezuela en Estados Unidos / 17-02-08