Multinational Monitor Editors blog

It’s hard to dismiss the temptation to write off the G8 meetings as a meaningless talkfest.

On the other hand, when the political leaders of the most powerful countries get together and issue joint statements, it may be worth looking at what these planetary stewards have in mind. This is particularly true at a time when new global crises — skyrocketing oil prices, the spike in food prices, the impact of the U.S. recession and accelerating global warming — are added to ongoing public health disasters and persistent global poverty.

Is it too much to expect the G8 leaders (the political leaders of the United States, Japan, Canada, Britain, France, Germany, Italy and Russia) to offer something meaningful in response to these problems?

With the G8 meeting in Hokkaido, Japan just concluded, the answer apparently is, yes.

G8 failures seem to fall into two categories: first, promise to do too little, and then renege on commitments made; second, promote harmful policies and projects.

In the first category comes the G8’s statement on global public health. Following aggressive lobbying by public health groups, the G8 agreed to reiterate its commitment to provide universal treatment for HIV/AIDS. But the rich countries have not agreed to put the money on the table to achieve this objective. “The AIDS crisis in Africa is an emergency, and reaching universal access by 2010 will require a quadrupling of spending over current levels,” explains Masaki Inaba of the Africa Japan Forum. “A restating of existing commitments is not a sufficient response by the G8.”

The dominant public health need in the world’s poorest countries is to restore the public health systems decimated by decades of International Monetary Fund and World Bank “structural adjustment” programs. The G8 leaders said only that they aim to “work toward” poor countries achieving the World Health Organization (WHO) target of 2.3 professional health workers per 1,000 people. (By contrast, according to WHO data, the United States has about 31 health workers per 1,000 people, and 56 per 1,000 if you include the category of “health management and support workers.”)

Also in the first category is the pathetic G8 statement on climate change. Dragged down most of all by the anti-leadership of the United States, the G8 announced a commitment to a 50 percent reduction in carbon emissions by 2050. Well, a sort-of commitment.

The best science says the world needs at least an 80 percent reduction from 1990 emissions levels by 2050, and very likely more, so the G8 commitment is totally inadequate on its face.

But the G8 position is even more lame than it first appears. A statement from an environmental coalition including Friends of the Earth International explained the key flaws. “First, the G8 formula is a global cut,” not imposing particular responsibility on the rich, high carbon-polluting countries. Second, “the cut has no clear baseline. It was revealing that in announcing it, Japanese Prime Minister Yasuo Fukuda initially said it was from 1990 levels, then had to take back that statement and subsequently mentioned a 2000 baseline.” Third, the statement is not binding, and “indeed, the G8 announcement reinforces the G8 as a site for climate action that rivals the UN process [for climate change negotiations] and effectively subverts it.”

In the second category of doing direct harm come many of the G8 recommendations in the declarations on the global economy and on food security.

The G8 leaders call for opening and deregulating financial markets, even as it is clear that financial deregulation has helped create the current global financial crisis.

The G8 leaders call for stronger patent, copyright and trademark monopolies. Remarkably, in a document purporting to address the key issues in the global economy, they make space to encourage rapid negotiation and completion of an Anti-Counterfeiting Trade Agreement, a deal that may hinder or criminalize peer-to-peer file sharing, require Internet Service Providers to limit consumers’ web access, and interfere with parallel trade in goods (like Canadian drugs brought into the United States), among other problems.

The G8 leaders call for completion of the Doha Round negotiations at the World Trade Organization, aiming to further deepen reliance on a global food trading system that has driven the poorest people off their land and undermined developing countries’ ability to feed themselves.

The G8 leaders also call for more aid for food-importing, poor countries — to be delivered through IMF lending facilities that typically require countries to adopt more of the market fundamentalist mandates that have driven people off the land and undermined governments’ capacity to assist the poor and pursue expansionary economic policies.

“I’m pleased to report that we’ve had significant success,” said President Bush as the G8 summit concluded.

Not exactly.

Private and corporate jet sales are taking off, reflecting an increase in the extreme concentration of wealth in the United States and around the world.

Worldwide sales of private jets have more than doubled since 2003, to $19.4 billion in 2007. The number of jets sold increased 28 percent between 2006 and 2007 alone, and sales are up sharply in the first quarter of 2008. Corporate jet ownership has increased by about 70 percent since the early 1990s. Demand for private jets is so high that a used jet bought in 2006 can now be sold at a handsome profit.

But where luxury items like a fancy bottle of wine or a Picasso painting are simply a private extravagance, private jet use imposes real costs on everyone who isn’t a high flyer — and on the planet. The costs are documented in “High Flyers: How Private Jet Travel is Straining the System, Warming the Planet and Costing You Money,” a new report issued today by the Institute of Policy Studies and Essential Action (an organization I direct).

Soaring private jet use reflects and is emblematic of skyrocketing wealth inequality, in the United States and globally. Private jet sales grew in parallel with commercial air travel until 1997. Then as wealth inequality began to ascend to stratospheric levels, so did private jet use.

The rise of a global billionaire class has globalized the private jet market. The main manufacturers report that half or more of sales are coming from outside of North America.

Private and corporate jets give the super-rich not just ease and comfort, convenience and luxury — including an escape from the bothers of security lines and flight delays — but a way to distinguish themselves from everyone else. Private jet marketing explicitly emphasizes the elite status and conspicuousness of this consumption.

And, because the ultra-rich are always eager to distinguish themselves from the very rich, private jets are becoming more luxurious and expensive. Boeing’s largest business jet costs $67 million. Other companies sell airplanes that are nearly as costly: Airbus’s priciest plane goes for $55 million, while Gulfstream Aerospace’s G550 sells for $46 million. A relative handful of the high flyers set aside Learjets and the like as child toys, and insist on owning their own personal jumbo jet — Boeing 757s and the like.

Fueling the take-off in jet use is not just concentrating wealth, but numerous subsidies. Amazingly, U.S. taxpayers subsidize private jet use and ownership. Corporate CEOs flying on jets for vacation on personal use pay personal income tax based on the value of the gifted flight — but the value is calculated based on much lower commercial airfares. Most startlingly, the 2008 Economic Stimulus Act enables private jet buyers to take a “bonus depreciation” — allowing them to take larger tax deductions in the first year after purchase than they otherwise would.

Private jet use is subsidized as well by commercial air traffic. According to the Federal Aviation Administration, general aviation — the segment of the industry that includes corporate jets, charters, air taxis, and recreational pilots — uses 16 percent of the FAA’s services, but pays just 3 percent of the cost. Very substantial amounts of federal funds spent on airport improvement between 2005 and 2007 — $2.2 billion of $7 billion total — went to small airports that primarily serve private jets. These are places like California’s Napa Valley Airport.

Private jet use is further subsidized through corporate profligacy, at the expense of workers, consumers and shareholders. Personal use of the company jet is the most common perk for CEOs of large U.S. companies. The Corporate Library has found that more than half of 215 companies surveyed allowed or required — yes, required; it’s supposedly a security precaution — executives to use company aircraft on personal trips, with a median annual cost of $182,929.56.

Perhaps the worst element of private jet use is the environmental damage. Burning airplane fuel spews huge amounts of carbon into the atmosphere, making air travel a significant contributor to global warming. Private jet travel is far less efficient than commercial air flights, because so few people are transported on each private jet flight.

Four passengers flying in a private Cessna Citation X from Los Angeles to New York, for example, would each be responsible for more than five times as much CO2 emitted by a commercial air passenger making the same trip.

And that’s a very generous calculation, given estimates that 40 percent of private jet flights are empty — as pilots return home rather than sit idle waiting for a return trip.

At least some in the industry aren’t very sensitive to these considerations. Robert Baugniet, senior manager of corporate communications for Gulfstream Aerospace told my colleague Jennifer Wedekind that concerns about the private jet contribution to global warming are “fallacious.”

“So if you go in a bus and pump out a whole bunch of CO2 into the environment, but because you’ve got 40 passengers on board it’s OK?” he queries. (Answer: Not OK, but a whole lot better.) In the aggregate, says Baugniet, air travel is a relatively small contributor to global warming, and private jet travel is a small part of that. So, what’s the big deal?

To the extent that private jets are symbols of an economic system gone awry, remedying the problem will require big picture policy changes — steep wealth and income taxes and other measures to redress inequality, and comprehensive policies to address global warming.

But soaring private jet use also demands its own response. Tax breaks for buying and flying private jets should be ended. Private jets should pay, at least, their fair share of FAA costs. And a hefty luxury tax should be imposed on private jet sales and flying.

We shouldn’t be supporting the High Flyers in their luxury indulgence. If such heavy-polluting opulence is to be permitted at all, the super-rich should pay a stiff price for the privilege.

Yesterday comes the news that the Commodity Futures Trading Commission (CFTC) is investigating potential manipulation of the oil trading market.

That’s a good thing, though the CFTC is not exactly the most aggressive regulator around. (Says Judy Dugan of Consumer Watchdog: “On its face, the investigation smacks of the fox investigating a hen shortage in the chicken coop.”)

Market manipulation may be contributing to the recent oil price spike — though even in the worst case, it is only part of the story. The most important factor is supply and demand: supply is having trouble keeping up with unabated demand growth.

Are Wall Street firms and hedge funds in fact manipulating the oil market? Perhaps. There are certainly enough conflicts of interest, and unregulation, to make such activity plausible. These aren’t exactly guys with an honorable track record.

Whether speculation is driving price up is a separate issue from manipulation. Investment dollars are pouring into oil futures, pretty clearly driving up price. This reflects supply and demand for oil futures as an investment tool, more than available supply and demand for actual crude oil. Some nontrivial portion of the recent run-up in price is almost certainly due to this speculative activity, which is fueled by leveraged buying (use of borrowed money).

At the end of 2007, with oil prices around $100 a barrel (a shocking height, just half a year ago), Jennifer Wedekind, my colleague at Multinational Monitor, interviewed roughly a dozen oil analysts about the price of oil. They were divided on the reasons for high oil prices of $100, with some agreeing that speculation — but not manipulation — played a role and others fiercely denying it.

Among those attributing some role to speculation was Linda Rafield, a senior oil analyst, with Platts: “We have seen money market funds and asset managers and portfolio managers definitely putting money to work in the commodities sector, and that certainly has bolstered prices, since most of those people notoriously will trade from the long side.” Against speculation as a factor was Jeff Rubin, chief economist and chief strategist, CIBC World Markets. Asked what factors were driving the price spike, he said, “Certainly not Middle Eastern instability or speculation or so-called geopolitical factors.”

Six months later, it seems like speculation has become increasingly important. It’s just very hard to identify what has happened in the last half year to jump prices by a third.

A second key factor in rising prices is the decline in the value of the dollar. A barrel of oil today is worth a barrel of oil tomorrow. If the dollar is worth less tomorrow than today, then the dollar value of a barrel of oil will be higher tomorrow. Against a basket of currencies, the dollar has fallen by 25 percent since 2003, and considerably more since its peak in 2001.

But, whatever the allocation of blame for today’s price, the most important factor in the big picture is supply and demand.

Global demand is growing at a steady clip, thanks to very rapidly rising oil use in China, India and the Middle East.

Global supply is stretched thin. Some argue this is because the world is at or near “peak oil production,” a tipping point when half the world’s oil has been extracted, and yields begin to decline, with very major price effects.

A different view is uncomfortable with the apocalyptic element of peak oil theory. From this vantage point, more oil — or close substitutes, like tar sands or shale — is available, but it is harder and more expensive to get. This is the preferred view of the oil industry analysts (many of whom note that much oil that is easily attained from a technological standpoint — for example, in Iraq — is hard to reach for political reasons).

Either way, the supply challenges combined with rapidly growing demand means the world is going to see steadily higher prices. Additionally, very tight supplies will inevitably lead to price spikes that appear irrational from a close-up view.

Says Charles Maxwell, senior energy analyst at Weeden & Co: “So long as capacity utilization in the world crude oil producing system is running at 98 percent, which it is today, and so long as perhaps one-and-a-half, 2 percent, that’s excess, is in the form of Saudi heavy, sour crudes, which the typical American refinery can’t use any more of — they use some, but they can’t use any more of because it has very serious effects in pitting the insides of these pipes and then requiring the refinery to shut down for a long time and the redoing of all the pipes — we’re going to have these periodic price rises of this sort.”

Explains Maxwell: “Any system needs to have a little cushion between adversity that strikes — weather factors or cut-offs for political purposes or political struggles from civil wars. We don’t have in this system enough of a cushion. Normally, capacity utilization is considered ideal around 94 to 95 percent. So our 98 percent capacity utilization is well above that and we can’t get it down, because it takes 5 to 7 years to create it and we aren’t spending the money today that would create it 5 to 7 years out.”

So, by all means, forward with a robust investigation of market manipulation, and yes to re-regulating oil markets that are now too financialized and removed from the buying and selling of real oil.

But the supply-demand challenges facing the world are much more serious than the speculative and other factors contributing to the present run-up in price.

It’s hard to imagine why the United States — or the world — would need more incentive than responding to climate change to invest in renewables, mandate much tougher efficiency standards for cars and a switch away from the internal combustion engine, and massively scale up public transportation. But climate change doomsday scenarios have, so far, not proven enough. Perhaps the prospect of $200/barrel oil will.