Brad Budsberg

 

Zuhyr Mikdashi,

“Collusion Could Work,”

Foreign Policy, No. 14, Spring 1974

 

Main Point:

The basic argument of this argument is that the oil crisis is changing the strategies of many countries that are looking to rapidly raise revenues just as the predecessors, OPEC, who became a commodity success story.

 

Summary:

Just as the oil-producing nations successfully cooperated to raise revenues of their commodity, other developing countries are looking for possible ways to follow suit in order to assist in development of socio-economic areas exploited by past foreigners.

 

Developing Cooperation:

 

“The United Nations Economic and Social Council favored in a 1973 resolution for collective action among developing nations in order to exploit market forces to their advantage.”

 

With the support of the UN, developing countries still face developed countries whom brand attempts as cartelists or exploiters all the while trying to push for continuation of competitive markets to regulate price of commodities.  In favor of the attempts, some countries such as France believe it is okay for they look at it as “payment for human effort rather than charity pure and simple.”  On a rather micro-level, each country has the challenges in areas such as economics and politics when cooperating to deal with to be successful.

 

Prospects for Cooperation:

1)      Beneficial Conditions

a)      Low long-run price elasticity of demand

b)      Willingness and capacity of producing countries to act jointly and to accept production control

c)      Little variation in production costs or in richness of resources among competing countries

d)      Similar expectations from collective action

e)      Uniform quality of the commodity in question

i)        Extra – approval and support, explicit or tacit, of major importing countries.

 

By increasing prices, substitutions are sought after to compensate for the raise in prices bringing growth to new areas and allowing the developing countries to increase revenues like planned in the short run.  Other options are creating supragroups which contain many commodities in a cooperative fashion but this is very difficult due to size and diversification.  

 

Copper:

The Council of Copper Exporting Countries (CIPEC) attempts to copy OPEC within the copper commodity industry but is running into challenges hard to overcome.  After losing face with many interested parties through false rumors, CIPEC is struggling to back up its voice with actions.  First, CIPEC is trying to build a stockpile to increase value by withholding quantity of copper until prices increase to a “more appropriate level.”  Other problems include “different social and political conditions and goals, and different mining conditions.”  To increase the situation, CIPEC only controls a quarter of the market and countries have stockpiles to offset supply shortages.  Not to mention that substitutes such as aluminum are gaining on the copper market as well.

 

Tin:

The International Tin Council (ITC) is a prime example of how a cooperative situation operates.  Although tin is being replaced by other substitutes, the commodity is still doing strong through interaction with open exchanges and numerous buyers.  To note, tin is at an advantage when one can deal with a uniform quality.  Also, ITC keeps it members in check to maintain stability within the cooperative situation.

 

Who Gains, Who Loses?

1)      Mercantile Nationalistic Standpoint:             the gain of developing countries would generally mean higher costs.

2)      Redistribution of Wealth:                             the spread of wealth of reduce tensions between developed and developing countries, and promotes global harmony