Crime and Payment at Exxon-Mobil

by Hank Edson, published May 1, 2007

Let us all take time today to revere one of the icons of corporate monstrosity, Exxon-Mobil. Exxon’s business practices are a catalogue of the spiritual crisis crippling the contributions American society was supposed to make to humanity. Rather than peace, prosperity and opportunity, Exxon devotes itself to economic oppression, the war, and the economic devastation of global warming. For Exxon-Mobil, these three crimes against human society are just a matter of basic business practice. Let’s take a look at these three business practices and then see just how well Corporate Crime pays:

1. Economic Oppression

The Biggest Business

Exxon-Mobil is the United States most valuable company worth $379 billion as of 2005. [1] In that year, Exxon Mobil recorded the largest annual profit for any corporation ever: $36 billion. [2] As if Exxon-Mobil didn’t already put the BIG in Big Business, its size is amplified by the lack of competition in the supply pipeline. The bottleneck in the supply pipeline is at the refinery stage. According to research conducted by the watchdog group, Public Citizen, in 2004, five companies controlled “48 percent of domestic oil production, 50 percent of refining, and 62 percent of the retail gasoline market.” [3] And since 2005, “the largest five control 55 percent of the refining market, and the largest 10 dominate 81.4 percent.” [4] And it need not be said that this is not an insignificant supply line feeding cocktail umbrellas or Paris Hilton CDs to the American Public. This is the life-blood of American mobility, which means the American workplace, which means the American defense against poverty. Without gas, we, the people, find our well being in jeopardy—sad to say.

But lack of competition is just the beginning. Game theorists and economists have for over twenty years understood that where the number of players controlling a market like oil is limited, the players learn to cooperate with, rather than to compete against, each other. This is the end of so-called “free market” economics. Because the players in the market learn to change the way they conduct their business based on their experience of the way their fellow market players behave and because they know that all players share an interest in maximizing profits, they do not need to communicate or contract with each other in agreements that prohibit competition. In this way, Big Oil corporations avoid anti-trust laws.

Game Theory

This system of evolving cooperative methods of conduct, based not on communication, but on trust built up through experience, was first explained by Professor Robert Axelrod in his 1984 book, The Evolution of Cooperation, in which he discussed the insights gained from study of a game called “the Prisoner’s Dilemma.” In the Prisoner’s Dilemma, two prisoners are kept in separate cells and are not permitted to communicate with each other. Both prisoners have participated in the same crime. If one prisoner, Prisoner A confesses and implicates the other prisoner, Prisoner B, Prisoner A will get reduced time in prison in exchange for helping the police. The same deal is available to Prisoner B, however. The Prisoners are thus left with a dilemma. If they both refuse to say anything, they both may get off without doing any time. If one stays silent and the other takes the deal, however, the silent prisoner will serve a more severe sentence than he would have if he confessed, while the one who takes the deal will get out after doing minimal time. If they both confess, the police no longer have an incentive to make a deal and neither gets off with a lighter sentence. All the same, they do both at least get a sentence less severe than they would have had they been convicted without confessing.

In short, if they both protect each other, they both win big. If one acts selfishly and the other protects his fellow conspirator, then the selfish prisoner benefits, and the team player suffers badly. If they both act selfishly, they both suffer, but not as bad as they would if they protected their fellow conspirator and then was betrayed by him. The Prisoner’s Dilemma does not just apply to criminals jointly accused of the same crime, however; it applies to any situation in which a small number of persons or entities are each individually faced with the decision whether to cooperate with each other or to compete against each other. If they choose to compete, they will never win big and they will never lose big. If they choose to cooperate, they may win big, but they may also lose big.

Axelrod wanted to learn how the same two players would react to the Prisoner’s Dilemma when they were required to play the game against each other over and over again. To this end, he held a contest in which his students submitted computer programs that would set the strategy a player would employ in playing the Prisoner’s dilemma, knowing he was facing the same opponent over and over and over. The winning program was called “Tit-for-Tat.” It began by choosing a cooperation strategy but penalized competition by competing on the next iteration of the game. When the other prisoner mended his ways, the Tit-for-Tat player would go back to cooperating. Sometimes, the Tit-for-Tat player would encourage cooperation by “forgiving” the act of competition even before the other prisoner demonstrated his willingness to cooperate. Both players could only imagine that the other player had the same understanding of the impact of cooperating or competing on their respective fates. Both players only knew how the other player was acting. Yet, despite the severe limitations on their ability to communicate with the other player, as a result of the “Tit-for-Tat” strategy, the players learned from experience to trust in cooperation in the face of the risks such cooperation posed without communicating any agreement to do so. Axelrod’s study of the Prisoner’s Dilemma provided the basis for understanding how dominant players in an economic market can collude in price fixing and other activities favorable to their economic interests without triggering prosecution for violation of anti-trust laws.

Today, the oil companies know that if they resist the impulse to compete with each other for customers by lowering prices, they will create a profit margin that more than offsets any loss in their customer base. Each member takes its turn actually discouraging customers by increasing the price of a gallon of gas, but in so doing, they successfully expand their profit margin. Ultimately, because each member takes its turn having the highest price, customers end up evenly distributed amongst all the companies, but these customers are paying a much higher price for gas than they would be if the companies engaged in market competition. Were market competition actually in operation, the profit margin would not be able to expand because underdog companies would be willing to take less of a profit in order to increase their customer base.

Artificial Bottleneck, Real Profits

The companies claim that the high price of gas is caused by market demand, but the price of gas has increased since President Bush took office independent of supply and out of proportion with any growth in demand. Thomas Palley of the Economics for Democratic and Open Societies Project recently explained, “2006 was the year oil prices came close to breaching $80 per barrel. This was despite the fact that there were no significant supply interruptions and oil demand actually fell in industrialized countries.” [5] Journalist David Sirota calls attention to an internal Chevron memo in which the company concludes, “If the U.S. petroleum industry doesn’t reduce its refining capacity, it will never see any substantial increase in refinery profits.” [6] When oil demand is falling and yet the world supply is uninterrupted, the only way to make money is to create an artificial bottleneck in the supply pipeline at the refinery stage.

Ordinarily, if a company refines less oil, it makes less money because it has less oil to sell on the market. Prices will remain low, while other participants try to take advantage of the opportunity to capture the market share formerly controlled by the company that has slowed down its refining operations. If, however, the market participants can all agree to cooperate with each other by sharing the burden of reducing refining capacity in a proportionate manner, then collectively they can act as a monopoly that is able to drive the market price higher and higher so long as the political climate doesn’t turn against them and so long as they don’t get caught breaking anti-trust laws. In order to avoid getting caught breaking anti-trust laws the oil companies have learned how to cooperate without actually making agreements with each other. David Sirota discusses the neat profiteering Big Oil is able to accomplish as a result.

Petroleum industry analyst Tim Hamilton released a report documenting how between January and April 2005, gas prices in [California] jumped 65 cents per gallon. This occurred even though “no public evidence exists of substantive increases to oil companies in the cost of a) producing crude oil; b) refining oil into gasoline or diesel; or c) transporting the refined products to market.” Where did the money go? Straight into the oil companies’ pockets—Hamilton discovered that at exactly the time consumers were hit with the 65-cent-per gallon increase, oil refiners increased their profits by 61 cents per gallon. [7]

By learning how to use game theory to enter into unspoken cooperation with each other, the oil companies have learned how to bilk the American public of billions of dollars, even though the American public should have the power: (1) to regulate the oil companies, (2) to prevent the concentration of power through economic monopolies, (3) to tax excessive corporate income, and (4) to revoke the corporate charters of companies that engage in illegal conduct. The problem is that we lack the sophistication as a democracy required to keep corporations in their place. Times are changing, however. Although we lack sophistication, sophistication is easily obtained. The first step is arriving at the clear understanding that big corporations like Exxon conduct themselves like enemies of the American people. Exhibit One supporting this accusation is the way they collude with each other to economically oppress the American people at every opportunity. Let’s move on to Exhibit Two.

2. War

Cheney’s Energy Task Force

Journalist Richard Behan writes that the goal of Vice President Cheney’s Energy Task Force was revealed in a top-secret memo dated February 3, 2001 to the staff of the National Security Council:

Cheney’s group, the memo said, was “melding” two apparently unrelated areas of policy: “the review of operational policies toward rogue states,” such as Iraq, and “actions regarding the capture of new and existing oil and gas fields.” The memo directed the National Security Council staff to cooperate fully with the Energy Task Force as the “melding” continued. National security policy and international energy policy would be developed as a coordinated whole. That would prove convenient on September 11, 2001, still seven months in the future. [8]

Publicly, Bush, Cheney, Rumsfeld and Rice, all people with significant professional ties to the oil industry, told the people of the United States that Saddam Hussein was our largest threat in the War on Terror; privately the Bush administration reviewed its strategy for refusing to disclose the industry members who met with Cheney’s energy task force. At the same time, the task force, with the help of the state department, began working on its plan for disguising the seizure of Iraqi oil for American corporations as nationalized oil for the Iraqi people.

Using Nationalized Oil as a Front for Privatization

Behan shows us how they planned to do it and how close the Bush administration is to succeeding. According to Behan, in April 2002, the State Department commenced “The Future of Iraq Project,” within which the “‘Oil and Energy Working Group’ provided the disguise for ‘capturing’ Iraqi oil.” The working group recommended the use of “production sharing agreements” (PSAs) under which oil companies receive a “share” of the oil produced in return for covering infrastructure and development costs. The trick was that the PSAs could be written so that a minimal investment was required by Big Oil in return for a very large share of Iraqi oil.

The Working Group found that, in April 2002, 100% of Iraq oil revenues returned to the central government. This was because oil production was nationalized and run by the National Iraqi Oil Company. It was thanks to nationalized oil revenues that Iraq enjoyed a fairly stable and modern level of public services and infrastructure. The working group devised a plan that

“would keep the National Iraqi Oil Company in place, to continue overseeing the currently producing fields. But these fields represent only 19% of Iraq’s petroleum reserves. The other 81% would be flung open to “investment” by foreign oil interests, and the companies in favored positions today-because of the war and their political connections—are Exxon/Mobil, Chevron/Texaco, BP/Amoco, and Royal Dutch/Shell. The nationalized industry would be 80% privatized.” [9]

(Emphasis added). Notably, the production sharing agreements that would govern such privatization generally are for up to 40 year periods and often grant over half the profits to the “investing” companies for the first 15 to 30 years, while denying the host country any revenue until the private foreign companies have recouped their investment.

In this way, the Bush administration planned to promote the seizure of Iraq’s oil resources from the Iraqi people while publicly asserting that their plan would “nationalize” Iraqi oil and would benefit the people of Iraq. Wealth-concentrationist corporatism in the guise of democracy. Of the available options, however, the Bush plan is anything but in the best interest of the Iraqi people. As Behan writes, “At a reduced level, Iraq is still producing oil and hence revenue, and no country in the world, perhaps, has better collateral against which to float bond issues for public investment. Privatization of any sort and in any degree is utterly unnecessary in Iraq today.” [10]

Sure enough, In March 2007, President Bush initiated the final steps toward making the Oil and Energy Working Group’s plan a reality. The U.S. House of Representatives passed “The Iraq Accountability Act” and a similar bill passed by the Senate containing a supplemental appropriation package that sets benchmarks first proposed by President Bush in order for money to be released. One of these benchmarks is the passage of Oil Revenue Sharing legislation in Iraq, which the President says will “give every Iraqi citizen a stake in the country’s economy.” What Bush does not say is that the Iraqi citizen’s stake will be much smaller than it should be under democratic principles, but will consist of a citizen’s share of only 20% of Iraqi oil. Nor does Bush inform the American people that the law he proposes to require Iraq to pass will give American corporations control over 80% of Iraqi oil. As the world’s largest corporation, Exxon Mobil stands to benefit from this plan more than any other party, making Exxon the real beneficiary of Bush’s undeclared Iraq War.

The Cost in Lives

To put the cost of this war in perspective, consider the February 2007 peer-reviewed study published in The Lancet, Europe’s most prestigious medical journal, which estimated 650,000 Iraqis had been killed as of last July. Les Roberts, one of the authors of the study explains that the study used “the standard cluster approach used by the UN to estimate mortality in dozens of countries each year.” [11] This means that more people have been killed in Iraq than in Darfur. That’s a lot of blood for Exxon’s oil. Now, let’s turn to our last exhibit, pertaining to global warming and environmental destruction.

3. Global Warming

Further Tales from Cheney’s Energy Task Force Crypt

Cheney’s Energy Task Force was not used just for planning an unjust, murderous, and destabilizing war; it was also used to obstruct the formation of an urgently needed government response to global warming. Greenpeace obtained documents through the Freedom of Information Act dating from 2001 to 2004 that established that executives at Exxon, worked closely with the Administration in developing its opposition to the Kyoto accord. The briefing papers, authored by Undersecretary of State Paula Dobriansky, thanked Exxon executives for their “active involvement” and stated that President Bush “rejected Kyoto in part based on input from you [the Global Climate Coalition,” an oil industry group largely controlled by Exxon. [12] Exxon, of course, has denied interfering with the administration’s position on global warming.

The American Enterprise Institute

Everyone knows that the Bush administration is up to their necks in life-long crude oil affiliations and interests. A key to understanding the dynamics of the partnership between Exxon and the Bush administration in particular is the American Enterprise Institute (AEI), a think tank which aligns the interests of Big Business and the Neo-Conservative Intelligentsia. Its members and former members include Vice President Dick Cheney, his wife, Lynn Cheney, and his daughter, Elizabeth Cheney. Richard Perle is also a member. Perle chaired the controversial Defense Advisory Board, which played a central role in promoting the Iraq invasion and in helping the administration to manufacture bad intelligence to justify war to the American people. Dana Milbank of The Washington Post has described Perle as the real political force responsible for the rise to power of the Neo-Conservative intelligentsia. Perle and fellow AEI members, Newt Gingrich, Dick Cheney, and Jeane Kirkpatrick, have all been signatories to letters issued by the other most prominent neo-conservative think tank, The Project for the New American Century (PNAC). An AEI luminary, Irving Krystol is considered the God-father of neo-conservativism and his son is chairman of PNAC. 20 members of the AEI staff have worked as consultants to the Bush administration. Likewise, 11 of the 18 signers of PNAC’s “Open Letter to President Clinton” Were appointed to the Bush administration. [13] The man in charge of George W. Bush’s transition team who was responsible for such appointments was, of course, Dick Cheney.

Through its close association with the Bush White House, AEI provides the Bush administration a service akin to money laundering, called policy laundering. Under the guise of being an independent, objective and reputable academic think tank, AEI cranks out policy that advances the interests of Big Business and the Neo-Conservative intelligentsia. The Bush administration then uses AEI reports to defend its policies as supported by sound academic research, rather than as catering to the interests of their political funders. And it just so happens that Exxon’s former CEO, Lee Raymond, is vice-chair of the AEI.

At AEI, Raymond comes to the job with a keen appreciation for the role of think tanks and political action foundations. TomPaine.com reports that:

During Raymond’s tenure, Exxon Mobil practiced an unprecedented level of greenhouse gangsterism. The company funded some 40 public policy front groups that, in turn, waged a multifaceted public relations campaign by proxy, attacking the nonprofit tax status of the company’s leading environmental critics and mounting vicious attacks on independent scientific experts in government and academia. [14]

Likewise, a report issued by the Union of Concerned Scientists, entitled, “Smoke, Mirrors and Hot Air: How ExxonMobil Uses Big Tobacco’s Tactics to ‘Manufacture Uncertainty’ on Climate Change,” found that Exxon “funneled nearly $16 million between 1998 and 2005 to a network of 43 advocacy organizations that seek to confuse the public on global warming science.” $1.6 million of that amount went to AEI. William Baroody of the American Enterprise Institute says, “I make no bones about marketing. We pay as much attention to the dissemination of product as to the content.” [15] Indeed, it is neither free speech nor fact-based research that is being disseminated at AEI and it is not academic integrity, but rather it is Exxon sponsored, Exxon benefiting “product.” Thus, Exxon uses AEI and other policy fronts as cover for its interests, and the Bush administration uses Cheney’s secretive energy task force as cover for its pandering to the corporations that put them in power. In so doing, Exxon and the White House created just enough political room to push stubbornly toward bigger and bigger oil profits, notwithstanding a mountain of scientific consensus warning that life on Earth is growing uncomfortably hot for untold numbers of species pivotal to the eco-system on which we all depend.

Crime and Payment

Forget Dostoevsky, as yet there is no punishment for the executives of Big Business. To be sure, the crimes of Big Business are as violent and brutal as they come, but the vastness of their scope challenges the capacity of human emotion to respond appropriately to them. Corporate crime pays because we have not been able to mount a vast enough response. And when corporate crime pays, it pays Big Business style—way beyond our capacity to comprehend. As the Biggest Business of them all, Exxon is the grossest example to be found.

First Take the Crime:

The ruthless and immoral conduct of Exxon is clearly evident despite all the sophistication, secrecy, and cover-up it uses in extracting and concentrating the power and wealth rightfully belonging to the democratic American people. In the process, Exxon does not hesitate to irreparably render inhabitable our planet. It does not hesitate to promote a murderous policy of warfare costing hundreds of thousands of human beings like you and me to suffer violent, painful, early and unnecessary deaths. And it does not hesitate to monopolize a vital economic resource and necessity and to use its hold over that resource to oppress the American people.

Author Thom Hartmann writes that because the corporatism of Big Business “answers to stockholders instead of citizens, and drives to the moral imperative of profit, thus ignoring future generations and long-term consequences to environments, cultures, and governments—there is a natural and dynamic antagonism between corporatism and democracy.” [16] As I said above, corporations like Exxon are, by their conduct, enemies of the American people.

Now Consider the Payment:

Hartman also calls attention to research showing that the boards of most of the world’s largest corporations are interlocked in a chain so that at least one board member also serves on another board where another member serves on another board where another member serves on another board and so on until the vast majority of the world’s wealth is controlled by an interrelated clan in the same way that were the royal families of feudal Europe. [17] A prime example of this is—you guessed it—Exxon. W.R. Howell, the chairman of Exxon-Mobil’s compensation committee, also serves on the board of Dick Cheney’s former company, Halliburton, as well as Williams Companies, famous for its price manipulation during the California energy crisis, as well as Pfizer and American Electronic Power.

Just as big players in markets with limited competition learn to use game theory to collude in price fixing, the leaders of Big Business have learned to play the “what comes around, goes around” version of tit-for-tat cooperation in determining each other’s compensation. Because the board rooms are interlinked, board members learn to treat each other favorably without any contractual obligation mandating similar treatment in return. Then they tell the world that in the market for corporate leadership, CEOs command these high compensation packages, even though the performance of many such CEOs is either abominable or criminal.

In 2006 the compensation committee chaired by Howell granted Exxon’s retiring CEO, the same Lee Raymond who is vice-chairman of AEI, a retirement package worth an estimated $398 million. Let’s put this number in perspective. Eighteen years after the Exxon Valdez oil spill wreaked oozing, sticky death across the Alaskan coastline and eighteen years after CEO Lee Raymond promised the people of Alaska, “We will make you whole again,” Exxon still refuses to pay the $5.2 billion in punitive damages awarded to Alaskan fishermen, native Alaskans and other plaintiffs.

While Exxon appeals the damages award, over 6000 plaintiffs have died and to this day the multi-million dollar herring fish industry remains closed indefinitely. [18] Exxon certainly can afford to pay the judgment imposed by a United States Federal court after a fair trial. The judgment, after all, is less than 1/6th of Exxon’s profits in just 2005, whereas Alaska has lost its coastline and its fishing economy for decades. Furthermore, even without being held liable for gross negligence, Exxon had no qualms about giving 1/13th of that judgment as a retirement package to the very man who held ultimate responsibility for the Valdez tragedy—the very man who, for the rest of his tenure at Exxon, employed every legal tactic possible to avoid living up to his promise to make Alaskans whole for their losses. Thus, while the world’s richest corporation refuses to pay court-ordered damages owed to hundreds of thousands of United States citizens, it gives to just one man a King’s proportion of that obligation for using all his corporation’s clout to induce economic oppression, unjust warfare, and environmental devastation across the globe. Some corporations earn slogans so true that all the propaganda, secrecy, and lawyering in the world will not help them shake the image the slogan evokes. For Exxon-Mobil, this slogan is Crime and Payment. It’s Crime and Payment at Exxon—Big Business Style.

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copyright © 2007 by Hank Edson

[1] John Vidal, “Revealed, how oil giant influenced Bush,” The Guardian, June 8, 2005, http://www.guardian.co.uk/climatechange/story/0,12374,1501646,00.html.

[2] Charlie Cray, “Legacy of An Exxon CEO,” Tom Paine.com, April 17, 2006, http://www.tompaine.com/print/legacy_of_an_exxon_ceo.php.

[3] “Consumers Pay at the Pump while Oil Companies Pay Themselves,” Public Citizen press release, March 31, 2004, http://www.citizen.org/pressroom/release.cfm?ID=1678

[4] “ Oil Companies Manipulate Markets and Gouge Consumers, Harming Both Economy and Environment,” Public Citizen press release, September 6, 2006, http://www.citizen.org/pressroom/release.cfm?ID=2268.

[5] Thomas I. Palley, “Manipulating the Oil Reserve,” TomPaine.com, January 26, 2007, http://www.tompaine.com/print/manipulating_the_oil_reserve.php.

[6] David Sirota, Hostile Takeover, How Big Money & Corruption Conquered Our Government—and How We Take It Back (New York: Crown Publishers 2006), p. 213-214.

[7] David Sirota, Hostile Takeover, How Big Money & Corruption Conquered Our Government—and How We Take It Back (New York: Crown Publishers 2006), p. 213.

[8] Richard W. Behan, “From Afghanistan to Iran: Connecting the Dots with Oil.,” AlterNet, February 5, 2007, http://www.alternet.org/module/printversion/47489.

[9] Richard Behan, “George Bush’s Land Mine: If the Iraqi People Get Revenue Sharing, They Lose Their Oil to Exxon,” http://www.commondreams.org/archive/2007/03/30/201/ print.

[10] Richard Behan, “George Bush’s Land Mine: If the Iraqi People Get Revenue Sharing, They Lose Their Oil to Exxon,” http://www.commondreams.org/archive/2007/03/30/201/ print.

[11] Les Roberts, “Iraq’s Death Toll is Far Worse Than Our Leaders Admit, The US and Britain have triggered an episode more deadly than the Rwandan genocide,” http://www.commondreams.org/views 07/0214-21.htm, published on Wednesday, February 14, 2007 by the Indendent/UK.

[12] John Vidal, “Revealed, how oil giant influenced Bush,” The Guardian, June 8, 2005, http://www.guardian.co.uk/climatechange/story/0,12374,1501646,00.html.

[13] Gary Dorien, Imperial Designs: Neo-conservatism and the New Pax Americana, ( New York and London: Routledge, 2004 ), excerpt at http://www.logosjournal.com/issue_3.2/dorrien.htm.

[14] Charlie Cray, “Legacy of an Exxon CEO,” TomPaine.com, April 17, 2006, http://www.tompaine.com/print/legacy)of_an_exxon_ceo.php.

[15] Laurie Spivak, “The conservative Marketing Machine,” AlterNet.com, January 11, 2005, http://www.alternet.org/module/printversion/20946

[16] Thom Hartmann, Unequal Protection, The Rise of Corporate Dominance and the Theft of Human Rights, (Rodale 2002) p. 152.

[17] Thom Hartmann, Unequal Protection, The Rise of Corporate Dominance and the Theft of Human Rights, (Rodale 2002) p. 202.

[18] Peter Rothberg, “Exxon’s Shame, The Nation, March 28, 2007, http://www.commondreams.org/archive/2007/03/28/132.