Hostname: page-component-76fb5796d-dfsvx Total loading time: 0 Render date: 2024-04-27T15:54:24.744Z Has data issue: false hasContentIssue false

The state—landlord or entrepreneur?

Published online by Cambridge University Press:  22 May 2009

Merrie G. Klapp
Affiliation:
Research Fellowship at the Center for International Studies, M.I.T., and the Marine Policy Program at the Woods Hole Oceanographic Institution, Woods Hole, Massachusetts.
Get access

Abstract

The 1970s were a period of turmoil as governments in both developed and less developed countries tried to take the lead in national oil development. While governments shifted from the role of landlord to that of entrepreneur, forming state oil companies, multinational corporate and private domestic industry groups blocked the way by switching from renters to political opponents. By the close of the decade, state oil companies had carved themselves a niche in multinational oil company operations but had been forced to make room there for other national industry groups as well. This article compares the process in Norway, Britain, Indonesia, and Malaysia, and tries to explain evidence that states in less developed countries (LDCs) gained more from multinational oil companies than did those in developed countries. Contrasting hypotheses concerning the ability of LDCs to harness multinational companies are explored. An alternative hypothesis is generated that relies on domestic rather than just international factors to explain the relatively greater gains of LDCs; it holds implications for the state's roles as landlord or entrepreneur. This explanation is contrasted with arguments that the coherence or strength of domestic structures explains relative state gains in the international economy.

Type
Articles
Copyright
Copyright © The IO Foundation 1982

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

The author wishes to thank Peter Katzenstein in particular for his incisive comments on this article, and Ernst Haas, Melvin Webber, Michael Teitz, Vinod Aggarwal, and her reviewers for their excellent comments and criticism of the paper or earlier dissertation work. She is also grateful to the Institute for the Study of World Politics for funding the field work.

1 Klapp, Merrie G., “Inter-Industry Conflict in the North Sea and South China Sea: A Comparative Analysis of Oil, Shipping, and Fishing in Four Nations,” Ph.D. diss., University of California, Berkeley, 1980Google Scholar.

2 Rent will be treated here as what is left over once costs (including a profit component) are subtracted from revenues.

3 Jaidah, Ali, “Problems and Prospects of State Petroleum Enterprises in OPEC Countries,” in United Nations Centre for Natural Resources, Energy and Transport, State Petroleum Enterprises in Developing Countries (New York: Pergamon, 1980), p. 18Google Scholar.

4 C. A. Heller, “The Birth and Growth of the Public Sector and State Enterprises in the Petroleum Industry,” in ibid., p. 12; Jaidah, , “Problems and Prospects,” p. 21Google Scholar.

5 Ghadar, Fariborz, The Evolution of the OPEC Strategy (Lexington, Mass.: Lexington Books, 1977)Google Scholar, cited in Heller, , “Birth and Growth,” p. 13Google Scholar.

6 Levy, Brian, “World Oil Marketing in Transition,” International Organization 36, 1 (Winter 1982), p. 118CrossRefGoogle Scholar.

7 Frankel, Paul, “The Rationale of National Oil Companies”, in U. N. Centre, State Petroleum Enterprises, p. 6Google Scholar.

8 Theodore Moran makes this basic argument for nationalization of production operations in low-barrier entry industries such as aluminum. See Moran, Theodore, “Multinational Corporations and Dependency: A Dialogue for Dependents and Non-Dependents,” International Organization 32, 1 (Winter 1978)CrossRefGoogle Scholar.

9 Tanzer, Michael, The Race for Resources: Continuing Struggles over Minerals and Fuels (New York: Monthly Review Press, 1980), p. 109Google Scholar.

10 Mitchell, Edward, “Capital Costs Savings of Vertical Integration,” in Mitchell, , ed., Vertical Integration in the Oil Industry (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1976), pp. 73103Google Scholar. Brian Levy has also pointed out that firms vertically integrate in order to avoid the uncertainties, risks, and instabilities of limited numbers of oil buyers and sellers, and the dependence on competitors for certain supplies (“World Oil Marketing in Transition,” pp. 114–15).

11 Transfer-pricing is the ability to minimize a company's total tax bill by shifting goods, services, or the burden of high prices from one branch to another, thus reducing a multinational company's tax liability in any one country. See Budd, Alan, The Politics of Economic Planning (Manchester: Manchester University Press, 1978), p. 127Google Scholar.

12 “Control” here refers to the ability to determine production and related contracting decisions, and to manage operations. “Operations” refers to investments in oil industry capacity: production, transportation, or subcontracting. The analysis'here will not include the other two major operations, refining and marketing. “Industrial space” refers to the ability to determine which industries will use territory, in this case offshore, and “compensation,” to pay off displaced users.

13 Weinstein, Franklin B., “Multinational Corporations and the Third World: The Case of Japan and Southeast Asia,” International Organization 30, 3 (Summer 1976): 373404CrossRefGoogle Scholar.

14 Bergsten, C. Fred, Horst, Thomas, and Moran, Theodore, American Multinationals and American Interests (Washington, D.C.: Brookings, 1978)Google Scholar; Bergsten, , “Response to the Third World,” Foreign Policy no. 17 (Winter 1974): 334CrossRefGoogle Scholar.

15 International Court of Justice, Norway-United Kingdom, Agreement Relating to the Delimitation of the North Sea between the Two Countries, London, 10 03 1965Google Scholar (entered into force 29 June 1965), UKTS no. 71 of 1965 (Cmnd. 2757).

16 Norwegian Ministry of Industry, Report no. 76 to the Norwegian Parliament (1970–71): Exploration for and Exploitation of Submarine Natural Resources on the Norwegian Continental Shelf, 30 04 1971, p. 32Google Scholar; Norwegian Central Bureau of Statistics, Industrial Statistics, 1976 (Oslo, 1978), p. 21Google Scholar.

17 The Norwegian Parliament charged Stat oil with the responsibility to perform exploration, production, transportation, refining, and marketing of petroleum, related products, and other closely related activities, alone or in cooperation with other oil companies. Norwegian Ministry of Industry, Report no. 30 to the Norwegian Parliament (1973–74) (Oslo, 1974), pp. 4344Google Scholar; Norwegian Central Bureau of Statistics, Industrial Statistics, 1976, p. 35Google Scholar.

18 Ibid., p. 19; Stat oil, Annual Report and Accounts 1976 (Oslo, 1976).

19 Oil development shifted the nation onto a new course. Previously, Norway had depended on its strength as a major shipping nation; though oil had played a part, it was as a commodity transported by Norwegian shippers. In this way the Norwegian fleet was built, keeping a broad national corporate structure in the industry and offering ship owners wildly high profits during the tanker shortages of the 1960s. By 1970, Norway had the fourth-largest fleet in the world, of which over one-third was oil tankers. However, different from other countries such as Britain, most of Norwegian shipping stayed in the hands of Norwegians: only one-fourth of the Norwegian oceangoing fleet was foreign-owned. Even so, much of the fleet was on charter to major foreign oil companies. Norwegian Ship owners' Association, Review of Norwegian Shipping 1977 (Oslo, 1977)Google Scholar; U.K. Ministry of Trade, Board of Trade, Committee of Inquiry into Shipping, Report presented to Parliament, 05 1970 (London: HMSO, 1970), p. 158Google Scholar.

20 Storing, James, Norwegian Democracy (Boston: Houghton Mifflin, 1963)Google Scholar.

21 Norwegian Shipping News 9–16 (Oslo, 1971)Google Scholar.

22 Norwegian Ministry of Industry, Report no. 30, p. 78Google Scholar.

23 Ibid., p. 50.

24 Interview #35 with high-level official, Economics and Legal Division, Petroleum Directorate, Stavanger, Norway, 7 February 1978.

25 Ibid.; Huger, Katherine, “North Sea Oil Development Policy: A Case Study of the Government-Industry Relationship in Norway and the United Kingdom,” Fletcher Forum I (Fall 1976): 3261Google Scholar.

26 Ibid., p. 49.

27 Interview #35; interview #39 with high-level official, Ministry of Commerce and Shipping, Oslo, Norway, 14 February 1978.

28 About $2 billion of these investments were by shipping companies. Interview #47 with high-level official, Department of Oil and Energy, Oslo, Norway, 22 February 1978.

29 Interview #39; interview #35. Although there was little direct foreign influence in Norwegian shipping's opposition to Labor government oil interests, much was at stake for the multinational oil companies. Saga's development as an internationally integrated oil company was a direct threat to major oil companies such as Esso. It placed Norwegian shipping companies in direct competition with them for relative shares of integrated tanker services to Norway. Similarly, Stat oil's projected vertical investments in tankers threatened the foreign oil company monopoly over integrated international operations, and the profits and management benefits therefrom. The basis for cooperation between foreign multinational oil companies and Labor government oil interests became apparent: multinational oil companies conceded control over offshore production to Stat oil in return for exclusive integrated transportation operations. Only two Norwegian tankers were hired.

30 Gross investments in fisheries in 1969 were only about 1.8% of national gross fixed capital formation. Moreover, different from shipping, there were no potential forward or backward industrial linkages between fishing and oil-only horizontal ones such as small-scale vessel services.

31 The 62nd parallel (actually 61°44'12” N. Latitude) was the northernmost boundary in the continental shelf agreement between Norway and the U.K. in 1965 (see footnote 15). Therefore, this also marked the northern limit on oil exploration activities.

32 Sibthorp, M. M., ed., The North Sea: Challenge and Opportunity (London: Europa Publications, 1975), p. 11Google Scholar. Also, fishing was displaced by oil companies' legal claim to private property offshore (500-meter safety zones around drilling areas).

33 Norwegian Directorate of Fisheries, “Fiskerirrettlederen i Haugesund-Bokn-Tysvaer-Utsina” (internal document) (Bergen, 1978)Google Scholar.

34 Interview #9 with high-level official, Legal Division, Directorate of Fisheries, Bergen, Norway, 17 January 1978; interview #25 with high-level official, Sø Norges Tralerlag [North Sea trawlers' association], Karmøy, Norway, 30 January 1978.

35 Compensation was not given for loss of space because of the legal and political ramifications of fishing's gaining, for the first time, a legitimate claim to property offshore. Fishing is legally a “public right,” and therefore has no such claim. However, compensation for displacement would de facto have recognized a claim and set the stage for a legal contest between oil and fishing over private property offshore. The amount of compensation was low compared to the value of foregone catches, but high compared to that in other countries. All currency conversions are calculated at the par value of exchange for that year. Rates are quoted from the American International Investment Corporation, World Currency Charts, 8th ed. (San Francisco, 1977)Google Scholar; or the International Monetary Fund, International Financial Statistics 31, 10 (Washington, D.C., 10 1978)Google Scholar.

36 Interview #24 with high-level official, Rogaland District Fishing Organization, Karmøy, Norway, 30 January 1978.

37 Rokkan, Stein, “Norway: Numerical Democracy and Corporate Pluralism,” in Dahl, Robert A., ed., Political Opposition in Western Democracies (New Haven: Yale University Press, 1960), pp. 73113Google Scholar; Havard Angerman, The Fishing Industry in Norway (Oslo: Royal Ministry of Foreign Affairs, 1971), p. 49Google Scholar. Despite fishing's successful opposition, in 1977 two fishing communities, Troms and Finnmark, switched to favor oil drilling north of the 62nd parallel once they were promised benefits from oil exploration off their shores. This upset the fishing and environmental opposition. North of 62–Ready for 1978 Action?Noroil no. 1 (01 1978)Google Scholar.

38 Shouldering a serious trade deficit of £754.1 million ($1809.8 million) by 1970, the government saw domestic oil production as a way to offset high oil imports and their dramatic effect on the British economy. Different from Norway, the government could not rely on shipping's foreign exchange earnings to boost the country's balance of payments. Much of British shipping was run by MNC oil companies whose earnings dissipated to other countries through transfer pricing. Stuart Holland argues that high U.K. taxes caused this substantial transfer-pricing, thus straining Britain's balance of payments. See Budd, , Politics of Economic Planning, p. 127Google Scholar; and MacKay, D. I. and MacKay, G. A., The Political Economy of North Sea Oil (London: Martin Robertson, 1975), p. 5Google Scholar. As for fishing, the government calculated that industry could benefit in the short run from a reduction in numbers, with future growth after oil was depleted offshore.

39 MacKay, and MacKay, , Political Economy of North Sea Oil, p. 25Google Scholar.

40 Sibthorp, , The North Sea, pp. 14, 255–58Google Scholar.

41 Budd, , Politics of Economic Planning, p. 122Google Scholar.

42 However, the Labour government continued to favor the participation of multinational oil companies offshore. With both BNOC and these oil companies producing, the government could continue to benefit from the risk-taking and expertise of foreign private capital while gradually increasing the role of the state oil company. Besides, it could not afford to anger these companies since they were responsible for all of current British oil production. So, whereas by January 1978 BNOC had signed 42 agreements with foreign oil companies, mostly for 51% control of offshore fields and the right to take up to 51% of the oil produced, it also gave the multinational oil companies the right to buy back up to 100% of its share of oil. By 1978 the governments had only received about £225 million ($456 million) in royalties and taxes from production in 1977, compared to the £909 million ($2018 million) projected for that year by experts in 1975. MacKay, and MacKay, , Political Economy of North Sea Oil, p. 28Google Scholar; Brown, Ewan, “Finance for the North Sea: A Matter of European Concern” (Oslo: Royal Institute of International Affairs, 02 1975)Google Scholar; U. K. Department of Energy, Development of the Oil and Gas Resources of the United Kingdom 1978, Report to Parliament by the Secretary of State for Energy (London: HMSO, 1978), p. 51Google Scholar.

43 U.K. Ministry of Trade, Report, p. 429Google Scholar; Chrzanowski, Ignacy, Concentration and Centralization of Capital in Shipping, edited by Wiater, S. J. (Lexington, Mass.: Lexington Books, 1975), p. 30Google Scholar; Central Office of Information, Shipping (London: HMSO, 1974), p. 4Google Scholar.

44 Traditional ship owners could not gain a foothold in the oil business since (1) they were dependent on fluctuating and extremely competitive spot market chartering by oil companies, and (2) the oil companies would not give them long-term charters (more than 5 years) with provisions against rising costs. Besides, having refrained from tanker investments in the 1960s (unlike the Norwegians), British ship owners lacked the investment capital to venture into oil activities offshore. Wary of these problems, traditional ship owners preferred to ply traditional trades rather than take the risks implicit for them in offshore investments. Eventually, about five shipping companies did invest in offshore supply boats as an “experimental,” marginal horizontal investment into oil. Economist, 9 May 1979; U.K. Ministry of Trade, Report, p. 160; interview #92 with high-level executive in P&O Shipping Company, London, England, 28 April 1978.

45 Under Part 1 of the Petroleum and Submarine Pipelines Acts of 1975, BNOC was charged with performing all of the exploration, production, refining, distribution, and petrochemical operations of an international oil company. This could have jeopardized Britain's official stance opposing national preferences in international shipping. Shipbuilding had just been nationalized in 1977, so ship owners were especially skittish about government favors' leading to intervention. Besides, unlike the Norwegians, British ship owners lacked vertical investments in shipbuilding enabling them to transfer the benefits rather than the costs of government preferences between sectors.

46 Interview #70 with executive, Offshore Marine, Aberdeen, Scotland, 5 April 1978.

47 Though British landings were valued at £92.6 million ($225 million) in 1971, most fishing was in single-owner boats. This lack of corporate structure deterred diversification into oil activities. However, the company-owned part of the British fleet did shift some fishing vessels over to oil-supply work.

48 U.K. Department of Energy, Development of Oil and Gas Resources, pp. 20, 29–30, 37Google Scholar.

49 Interview #67 with high-level official, Scottish Fishermen's Federation, Aberdeen, Scotland, 4 April 1978; University of Aberdeen, Department of Political Economy and the Institute for Sparsely Populated Areas, Loss of Access to Fishing Grounds Due to Oil and Gas Installations in the North Sea, research report no. 1 (Aberdeen: University of Aberdeen, 1978), p. 52Google Scholar; interview #61 with editor, Fishing News, London, England, 23 03 1978Google Scholar.

50 Loss of access to fishing grounds ranged between 98.5 square miles and 893.1 square miles. An industry report estimated that over the ten years from 1977–87, the loss in fishing grounds by British fishermen would increase by 25% to 30%. Fishing industry leaders worried that this proliferation of oil installations, underwater debris, and safety zones would shrink the amount of navigable space available to fishing, thereby threatening the viability of the industry itself in the North Sea. University of Aberdeen, Loss of Access, pp. 126, 128.

51 Expulsion of the British fishing fleet from Iceland during 1973–75 forced vessels to compete with other British fishermen in home waters.

52 Most of the vessels fishing out of English ports and some out of Aberdeen were owned by English or foreign-headquartered fishing companies. However, most of the vessels fishing out of Scottish ports were owned on a share basis by the skipper and crew.

53 Economist, 21 January 1978.

54 The Ministry of Agriculture, Fisheries and Food.

55 Interview #57 with high-level official, Fishing and Offshore Oil Consultative Group, Ministry of Agriculture, Fisheries and Food, London, England, 21 March 1978.

56 U.K. Department of Energy, Development of Oil and Gas Resources, p. 20Google Scholar.

57 Royal Dutch/Shell began exploration in 1871; Standard Oil of New Jersey entered in 1912 and later merged with Mobil; and Standard Oil of California began exploration in the early 1930s and merged its Asian operations with those of Texaco in 1936. See Bartlett, Anderson, Barton, Robert, Bartlett, Joe, Fowler, George, and Hayes, Charles, Pertamina: Indonesian National Oil (Jakarta: Amerasian, 1972), p. 1Google Scholar.

58 Some analysts attribute the Indonesian government's formation of national oil companies to factors such as top ministers' political ambitions, measures to quell regional rebellions, internal bureaucratic and army power rivalries. But these problems could have been, and were, defused by other means such as political payoffs, promotions, and decentralized administrative authority. Instead, the national oil companies also served as channels for these purposes: profits, industrial capacity, and autonomous supplies were the primary reasons for the choice of a corporate (and therefore profit-making) production entity and government strategy.

59 Interview #147 with ex-high-level official, Pertamina and OPEC, Jakarta, Indonesia, 19 September 1978.

60 Bartlett, et al. , Pertamina, pp. 382–84Google Scholar.

61 Production-sharing arrangements left management control of oil production and development to the national oil company. The Independents gave advice, purchased the oil, and arranged for shipments to Japan.

62 Bartlett, et al. , Pertamina, pp. 382–84Google Scholar.

63 Ibid., p. 143.

64 These are capitalized in order to avoid confusing a particular company belonging to the group known as “Majors” with a major oil company working in a country. “Majors” refers to seven fully-integrated international oil companies: Exxon, Mobil, Shell, Texaco, Gulf, Standard Oil of California, and British Petroleum.

65 Ringbakk, Kjell-Arne, “Multinational Planning and Strategy,” Amos Tuck School of Business Administration, Faculty Working Papers (1975), p. 12Google Scholar; Barlett, et al. , Pertamina, pp. 295–97Google Scholar.

66 Interview 147.

67 Bartlett, et al. , Pertamina, p. 181Google Scholar.

68 Ibid., p. 236; Hunter, Alex, “The Indonesian Oil Industry,” in Glassburner, Bruce, ed., The Economy of Indonesia (Ithaca: Cornell University Press, 1971), p. 313Google Scholar.

69 Bartlett, et al. , Pertamina, p. 312Google Scholar.

70 Pertamina would invest in oil-related shipping, while government-run shipping would remain separate-sticking primarily to coastal or island trade.

71 Interview 147.

72 Government economists had several reasons for concern over Pertamina's expansion: (1) Pertamina had significant fiscal power over those ministries-despite 1971 legislation (Law #8) increasing government control over oil taxes paid by foreign companies, Pertamina was still able to retain most of those funds for reinvestment purposes; (2) the government's economists had little influence over Pertamina's policies or use of funds; (3) the company was becoming so powerful within the Indonesian economy that by 1974 the foreign press was calling it “a state within a state”; and (4) Pertamina's investments and payments throughout Indonesia were altering the effect of government regional economic policies. Interview #143 with ex-high-level official, Ministry of Mines, Jakarta, Indonesia, 12 September 1978; Bartlett et al., Pertamina, p. 325; interview #143. Caltex accounted for 70% of all national oil production.

73 The U.S. government saw that oil shipments would be more secure if transported by the Majors rather than Pertamina, since Indonesia was a member of OPEC. Second, during 1972 the U.S. was importing about one-fifth of Indonesia's 300 million barrels of oil (Asia Week, 18 July 1978, p. 34), so Pertamina's oil politics could jeopardize a part of U.S. supplies. Third, the increasing power of Colonel Dr. Ibnu Sutowo, Pertamina's head, was a potential threat to the stability of the pro-U.S. Indonesian government and thus also to U.S. relations with other southeast Asian countries.

74 The IMF was primarily concerned that Pertamina was not following the rules of international finance and wanted to supervise the company's investments. Its major worry was over Pertamina's accounting procedures for the calculation of assets and, therefore, collateral to take out loans (Interview #147). However, it was also concerned that company funds were being used for corrupt personal gains and political payoffs.

75 These actors preferred a Work Contract to production-sharing. In Work Contracts, profits were divided between the foreign and state companies, but the former retained management control and the state company only took up to 20% of its share in oil supplies. They also wanted foreign oil companies to retain control over most of the other operations linked to the production of oil, such as transportation. This would keep capital, risk-taking, and expertise in the hands of Major oil companies, not state companies or the Independents.

76 Interview #147; interview #139 with consultant, Ministry of Finance, Jakarta, Indonesia, 8 September 1978.

77 Pertamina's production fell from 140,000 barrels per day in 1974, before the government's takeover of the company, to only 90,000 barrels per day in 1978. Interview #148 with high-level official in Index Indonesia Petroleum Ltd., Jakarta, Indonesia, 20 September 1978.

78 Some observers contend that Pertamina, particularly since the 1975 reorganization of the company, has not exercised the managerial control it legally holds over foreign oil companies. Although I agree that the problem of actual versus theoretical state control is a serious one, I would argue that altered for ign decision making or foreign company preferences based on perceived managerial constraint are the kinds of evidence that show that the Indonesian state actually exercised control over foreign companies. For example, foreign oil companies have been constrained to subcontract Pertamina's (Pertamina Tongkang) supply boats when they would otherwise have contributed other foreign companies' vessels or used their own. Also, Major oil companies prefer to work under Contracts of Work, but have agreed to production sharing arrangements in order gain offshore leases from the Indonesian government.

79 Whereas Inpex-Total had only been producing 5000 barrels per day before 1975, the new onshore production brought the joint-venture company's production level up to 1.3 million barrels per day by March 1977. During the first six months of 1978 Inpex-Total production was averaging about 1.1 million barrels per day, placing it far ahead of Caltex's 800,000 barrels per day during the same period. Indonesia's reported total crude oil production during the first half of 1978 was about 1.7 million barrels per day, a discrepancy of about 600,000 barrels per day from the sum of individual companies' production levels. (Interview with high-level official in a major foreign oil company working in Indonesia; Production en Indonesie, 1976, an updated graph provided in the same interview, which shows the production level of all companies in Indonesia during 1973–78, including total production levels for the country.)

80 Fishing accounted for only 2.1% of gross domestic product in 1972. Lack of both capital and corporate structure deterred potential oil-related investments.

81 Bartlett, et al. , Pertamina, p. 299Google Scholar.

82 Hunter, , “Indonesian Oil Industry,” p. 311Google Scholar; Bartlett, et al. , Pertamina, pp. 382–83Google Scholar.

83 Interview #130 with official from Fisheries Department, Ministry of Agriculture, Jakarta, Indonesia, 31 August 1978.

84 Oil could make a greater contribution to GNP in a shorter amount of time than either shipping or fishing. By the late 1960s the transportation and communication sector was only contributing 4% of GNP, while fishing was only about 3%. Besides, oil exports would improve Malaysia's position in the world economy. Lim, David, Economic Growth and Development in West Malaysia 1947–70 (Kuala Lumpur: Oxford University Press, 1973)Google Scholar; Prime Minister's Economic Planning Unit, First Malaysian Plan 1966–70, Mid-Term Review (Kuala Lumpur; 1969), p. 14Google Scholar.

85 Kasper, Wolfgang, Malaysia: A Study in Successful Economic Development (Washington, D.C.: American Enterprise Institute for Public Policy Research, Foreign Affairs Studies, 1974), p. 103Google Scholar.

86 Department of Information, Malaysia 1971: Official Year Book (Kuala Lumpur: Director General of Printing, 1972), p. 544Google Scholar; interview #106 with high-level official, Shell Malaysia, Kuala Lumpur, Malaysia, 7 August 1978.

87 Two events in 1973 led the government to this conclusion: natural gas was discovered offshore in Peninsular Malaysia, and a world oil shortage threatened Malaysia's source of energy. Interview #108 with high-level official in Finance and Planning Division, MISC, Kuala Lumpur, Malaysia, 8 August 1978; interview #125 with high-level official, Ministry of Trade, Kuala Lumpur, Malaysia, 23 August 1978.

88 Ministry of Finance, Economic Report 1977/78 (Kuala Lumpur, 1978), 6:114Google Scholar.

89 Shipping posed little opposition to state oil enterprise since the industry was partly government-owned. Up to 1968 Malaysian shipping was virtually nonexistent. Most of Malaysian trade was carried by foreign freight conferences (Far East Freight Conference, FEFC), accounting for M$4.325 billion (US$1,413 billion) in exports and M$3.510 billion (US$1,147 billion) in imports by 1970. However, with FEFC rates increasing, the government joined with private sector interests in 1968 to form a national shipping company, MISC. In addition to trying to build a dry cargo fleet, MISC also made initial moves to expand into oil transport. Backing from Japanese and Chinese capital gave the company the financial clout to make an entry into the Malaysian oil trade but Shell refused to charter MISC's first tanker, so this attempt was thwarted. Instead, Shell chartered Mobil tankers for all of its oil transport and, later, Esso relied mostly on the fleet of its parent company, Exxon. Economic Planning Unit, First Malaysia Plan, p. 32Google Scholar; interview #108; interview #106.

90 Interview #128 with high-level officials in MISC and MASA (Malaysian Ship owners' Association), Kuala Lumpur, Malaysia, 28 August 1978.

91 Ibid.; interview #125.

92 Interview #114 with high-level official in Esso Production Malaysia Inc., Kuala Lumpur, Malaysia, 10 August 1978.

93 Interview #118 with reporter from Asian Wall Street Journal, Kuala Lumpur, Malaysia, 12 August 1978.

94 Ibid.; interview #106.

95 Similar to the Indonesian case, observers may claim that the Malaysian state's control was only tutelary vis-a-vis the foreign oil companies. However, that MISC LNG tankers will transport Malaysian gas exclusively when foreign oil companies would have retained more control through their own or other foreign tanker companies is evidence of the Malaysian state's ability to constrain foreign oil companies to act in a way other than they would act without such state control. See Ministry of Finance, Economic Report, p. 114Google Scholar.

96 Industrial Coordinative Act of the New Economic Policy.

97 Shell operations in East Malaysia were 45 miles from shore and covered 4500 square miles off Sabah and 17,000 square miles off Sarawak. Esso's operations in West Malaysia were about 150 miles out, but covered 15,000 square miles. Interview #115 with field operations official, Esso Petroleum Malaysia, Kuala Lumpur, Malaysia, 10 August 1978; interview #106; interview #107 with exploration official, Esso Production Malaysia, Kuala Lumpur, Malaysia, 8 August 1978.

98 Interview #119 with high-level official, Fisheries Department, Kuala Trengganu, Malaysia, 14 August 1978.

89 Stuart Holland's notion of the state as entrepreneur is that governments intervene at the microeconomics level through the inter sectoral composition of public enterprise. By participating in key sectors, they hope to raise the growth rate of industrial investment, instead of placing complete national economies under state planning. See Holland, Stuart, The State as Entrepreneur (White Plains, New York: International Arts and Science Press, 1973)Google Scholar.

100 We might use this term to avoid confusion with “penetration,” often used to refer to foreign companies' investing in a national economy. Here we are referring to national company investments breaking into previously foreign-monopolized operations in a country.

101 Heller, (“Birth and Growth,” p. 13)Google Scholar has analyzed evidence in Indonesia, Saudi Arabia, and Iran that suggests that states first get involved in domestic marketing, domestic refining, exploration and production, and finally transportation. Levy analyzes how changing barriers to entry, such as world oil shortages in the early 1970s, and the breakdown of vertical integration by the Majors allowed state oil companies to increase their share of direct marketing operations (see “World Oil Marketing in Transition”).

102 Katzenstein, Peter, “Capitalism in One Country? Switzerland in the International Economy,” International Organization 34, 4 (Autumn 1980)CrossRefGoogle Scholar.

103 Krasner, Stephen, “Transforming International Regimes; What the Third World Wants and Why,” International Studies Quarterly 25, 1 (03 1981)CrossRefGoogle Scholar; Krasner, , Defending the National Interest: Raw Materials Investments and U.S. Foreign Policy (Princeton: Princeton University Press, 1978)Google Scholar, chap. 3.