This has been originally published on EBN
The fall to six-year lows in oil prices has been swift and unexpected for many economists. However, for following macroeconomics theory, these decrease in oil prices is completely expected. The pace of energy sector layoffs has been similarly quick, if not so surprising. The arc of the story may offer a cautionary tale for the electronics sector.
When the supply exceeds demand in an economy then the net result is excess production. Whenever wages trail productivity in an economy, the supply-demand gap results in layoffs. The rise in pink slips at oil-related enterprises sent overall job cuts in January soaring 40% from the previous month, to a nearly two-year high, as reported by outplacement firm Challenger, Gray & Christmas. The firm attributed 21,322 layoffs last month to falling crude prices, compared with 14,262 total cuts in 2014.
The oil industry has been dominated by the Organization of the Petroleum Exporting Countries (OPEC) monopoly. In the past, several oil corporations existed but increased Mergers and Acquisitions (M&As) in this industry leave a handful of oil monopolies. Oil and gas production have boomed in United States, thanks to hydraulic fracturing (fracking) and horizontal drilling of shale rock.
American oil production declined steadily from a peak of 9.6 million barrels a day in 1970 to under 5 million in 2008. About then, independent producers began adapting the new technologies of hydraulic fracturing and horizontal drilling, first used to tap shale gas, to oil. Total American production has since risen to 7.4 million barrels a day, and the Energy Information Administration (EIA), a federal monitor, reckons it will return to its 1970 record by 2019. The International Energy Agency is more bullish; it reckons that by 2020 America will have displaced Saudi Arabia as the world’s biggest producer, pumping 11.6 million barrels a day.
With use of new technology there has a boost in supply of oil but to stop American oil producers from ending the monopoly of OPEC, the oil monopolies have been reducing the price of oil so much that it is getting increasingly expensive to continue producing more oil using the fracking technology. This has contributed to rising layoffs in US.
Even if US wishes to export its oil to rest of world, the fracking technology is still not as cost competitive enough to compete with the abundant supply of oil from OPEC monopolies. European shale dream is dying before it started. A 2013 report from the U.S. EIA projected that Romania held the fifth-largest unproved wet shale gas estimated reserves in Europe (trailing Russia, Poland, France, and the Ukraine). This is an example of monopoly killing technology and evidence of how monopoly capitalism in oil industry is able to stop the growth of new fracking entrepreneurs in US in order to retain their share of market by unfair means.
Now, whether this can happen to the high technology industry? If you watch closely, the profitability of semiconductor industry has been driven by means of mass production. There has been steady growth in corporate profits and steady progress of Moore’s law with ever increasing sizes of wafers since 1965. Today, Global semiconductor industry is coming to a standstill when it comes to progress of 450 mm silicon wafers. As explained in an article I authored on Semi.org article, due to the poor consumer demand in economy, major players in this business do not expect to reap significant returns from their huge capital investments. This is because of monopoly capitalism. The consumer purchasing power of majority in the U.S. economy has shrunk because of the transformation of U.S. economy from a free market enterprise to monopoly capitalism.
Some of major players in global semiconductor business are concerned that their investments for transitioning to 450mm diameter wafers would not yield any significant returns. This could turn out to be one of the causes for money to remain inert or unutilized in this capital-intensive business. As a result of above policies, money in the economy would become immobile or inert; consequently, there would be no investment, no production, no income, and hence further reduction in consumer purchasing power.
The situation potentially could become so dangerous that there would be very few buyers to buy new electronic goods. This macroeconomic analysis explains why macroeconomic reforms have become critical for transition to 450mm diameter silicon wafers to ensure that money does not remain inert and it keeps circulating in the economy in order to keep increasing the consumer demand for the latest and greatest electronic products.
Without above proposed macroeconomic reforms, progress of Moore’s law seems impossible and the chances of the U.S. economy transitioning from a great recession to a depression seem inevitable. Hence, if monopoly capitalism is permitted to continue in high tech sector, there’s a chance that monopoly could, indeed, become the assassin of the high-tech sector.