Why will there be blood?

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There Will Be Blood, an expose of the early 20th century American oil industry, follows an oil entrepreneur who learns drilling technology and travels the country, buying land from local communities to harvest oil. One theme in the movie is the inevitability of violence, caused both by the unsafe drilling operations and the increasingly hostile relationship between the savvy driller and the rural community in California.

I’m not an American historian, but I can believe that violence was an integral part of early American oil exploration. There are plenty of historical and semi-fictional examples of violence surrounding oil, such as: recent history of Iraq, Syriana, Blood Diamond (diamonds and oil are similar), and lesser publicized events such as conflict amongst Ecuadorian Indians.

So it is intuitive that There Will Be Blood. But Why Will There Be Blood?

What does the econ 101 model say? Everyone should be better off with the discovery of oil: the community gains and controls a valuable resource; the entrepreneur has another application for his technology. Win win.

Here are some reasons for the violence (I think all of these boil down to each side believing they should get a larger portion of the pie):

  1. Asymmetrical information: the driller knows much more than the local community about how much a field may be worth, how much environmental damage drilling will cause, how to write contracts to avoid responsibility, etc
  2. Asymmetrical power: the driller has much more technology, worldliness, and prowess than the local community, and can exercise that power to its advantage in a way that often results in violence; see Guns Germs and Steel; see Spanish General Pizarro meets Inca ruler Atahualpa
  3. Uncertainty: in environments of uncertainty (specifically, how much oil, how much environmental damage, who profits) it is always easier to justify your own actions (I took on risk!) or claim you have been cheated (they promised me something and didn’t deliver); violence ensues

In addition to these reasons, conflict can also arise when the government controls the land and doesn’t represent the people who live on it.

Are there other reasons for the violence surrounding oil? Why does the media paint an ugly picture of oilmen (e.g. Syriana) but a more friendly one, say, of wealthy tech gurus, or even (gasp) hedge fund managers?

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2 Responses to “Why will there be blood?”

  1. Adam Says:

    Sam,

    Being a man of my word, though not an oilman, I’m starting to look through your archives. Since you’ve decided to encroach on my territory (I wrote my senior thesis on P.T. Anderson, jackass), I’ve decided it’s only fair to encroach on yours. Rather than dazzling you (i.e. boring you to tears) with a more formal analysis to counter your gross over-simplification of a rich and layered work of literature, I’m going to stumble headfirst into the realm of economics. As you know, I have little background in this field: no econ in hs or college, not even “Freakonomics.” And for the record, I think Marx will more or less be vindicated in the next 100 years.

    Now I assume you’re less interested in the role of violence in business around the turn of the century in the American West, and more interested into the general application of the question: Why does the presence of a valuable commodity in a region lead to instability rather than prosperity? But I think it’s really more of a chicken-and-egg question, and you touch on this when you talk about non-representative governments (your euphemism for corrupt or corruptible) controlling the land in a lot of resource-laden areas.

    So restating in chicken-and-egg form: does the presence of a valuable commodity create instability/violence (or could it destabilize a stable region), or does it increase already existing instability/violenc? I would guess the latter. Maybe we can call this the “shark frenzy” model, in honor of the recently departed Shark Week? For instance, there was no blood when oil was discovered at Beverly Hills High. On the contrary, BHH’s good fortune has made it one of the few, perhaps the only, good public school in the Greater LA area (excepting Zach Safir as a defective product).

    One of the few economic tidbits from my days as a reader of the Financial Times is a cursory knowledge of the Wade Formula. Are you familiar with this? It’s the brainchild of the President of Senegal. My understanding is it’s a pan-African economic model that essentially trades or shares “stability” from countries that have it but not resources (e.g. Senegal) for a share of the revenues generated by other countries from bloody commodities like diamonds and oil. I’m not exactly sure how this works, but it would seem to be in line with the assumption of our shark frenzy model. Of course, the question remains as to why resource-poor countries like Senegal might be relatively stable to begin with. I’m finished.

    ADF

    P.S. I would recommend watching “The Treasure of the Sierra Madre”, cited as Anderson’s inspiration for TWBB, but I know you hate B&W movies.

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