The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and the World

PART I

THE THIRD INDUSTRIAL REVOLUTION

CHAPTER ONE

THE REAL ECONOMIC CRISIS EVERYONE MISSED

It was 5 a.m. and I was running on my treadmill, only half listening to the early news on cable TV when I heard a reporter talking excitedly about a new political movement calling itself the Tea Party. I stepped off the machine, not sure if I had heard correctly. The screen was full of angry middle-aged Americans hoisting yellow Don’t Tread on Me flags, complete with the coiled snake insignia. Others were thrusting signs at the camera declaring No taxation without representation, Close the borders, and Climate change is a hoax. The reporter, barely audible above the chants, was saying something about a spontaneous grassroots movement that was spreading like wildfire across the heartland, protesting big government in Washington, DC, and liberal career politicians who cared only about enriching themselves at the expense of their constituents. I couldn’t believe what I was seeing and hearing. It was like witnessing a perverse inversion of something I had organized nearly forty years ago. Was this some kind of cruel cosmic joke?

THE BOSTON OIL PARTY OF 1973

December 16, 1973. Snow began falling just after sunrise. I felt a chilling wind against my face as I approached Faneuil Hall in downtown Boston, once the meeting place where firebrands and radicals like Sam Adams and Joseph Warren railed against the colonial policies of King George III and his corporate emissaries—the most notorious and hated being the British East India Company.

The city had been bunkered down for weeks. Traffic, which is generally heavy and often gridlocked in town, had been sparse for several days, largely because many gas stations had run out of fuel. At the few stations still pumping gas, motorists lined up for blocks, waiting an hour or more to fill up their tanks. Those lucky enough to find fuel were shocked at the prices being charged at the pump. Gas prices had doubled in just a few weeks, creating near hysteria in a country that, up to that time, was the largest oil producer in the world.

The public reaction was understandable given that it was America’s abundant oil reserves and its wily ability to mass-produce affordable cars for a restless, nomadic people that catapulted the United States to commanding heights, making it the world’s leading superpower in the twentieth century.

The jolt to our national pride came without warning. Just two months earlier, the Organization of Petroleum Exporting Countries (OPEC) slapped an oil embargo against the United States in retaliation to Washington’s decision to resupply the Israeli government with military equipment during the Yom Kippur War. The oil shock reverberated quickly across the world. By December, the price of oil on the world market had shot up from $3 per barrel to $11.65.¹ Panic ensued on Wall Street and on Main Street.

The first and most obvious sign of the new reality was at neighborhood gas stations. Many Americans believed that the giant oil companies were taking advantage of the situation by arbitrarily spiking prices to secure windfall profits. The mood among motorists in Boston and around the country quickly turned sour. This was the backdrop for the tumultuous event that would unfold on the Boston wharf on December 16, 1973.

The day marked the two hundredth anniversary of the famed Boston Tea Party, the seminal event that galvanized popular sentiment against the British crown. Angered over a new tax imposed on tea and other products being exported to the American colonies by the mother country, Sam Adams spurred on a band of discontents, some of whom dumped tea cargo in the Boston Harbor. No taxation without representation quickly became the banner cry of the radicals. This first act of open defiance of British rule set off a series of reactions and counterreactions by the monarchy and its upstart thirteen colonies that would end in the Declaration of Independence in 1776 and the Revolutionary War.

In the weeks leading up to the anniversary, a groundswell of anger was building up against the giant oil companies. Many Americans were furious over what they considered to be unjustified price gouging by callous global companies threatening to undermine what Americans had come to regard as a basic right as revered as free speech, free press, and free assembly—the right to cheap oil and auto mobility.

I was twenty-eight years old at the time—a young activist weaned on the anti–Vietnam War and civil rights movement of the 1960s. A year earlier, I had launched a national organization, the People’s Bicentennial Commission, which I hoped would serve as a radical alternative to the official American Bicentennial Commission established by the Nixon administration to commemorate the various historical events leading up to the two hundredth anniversary of the signing of the Declaration of Independence in 1776.

I conceived of the idea of an alternative celebration in part because of my growing alienation from my colleagues in the New Left movement. Having grown up in a working-class neighborhood on the deep south side of Chicago—a community of tradesmen and mechanics, policemen and firemen, and families who worked in the Chicago stockyards, rail yards, and nearby steel plants—patriotism was in my blood. On any given day, a visitor could not help noticing the flutter of American flags on front porches scattered across my neighborhood. Every day was Flag Day.

I was raised on the American dream and developed a deep appreciation for the radical sentiments of our founding fathers—Thomas Jefferson, Benjamin Franklin, Thomas Paine, George Washington—the small group of revolutionary thinkers who put their lives on the line in pursuit of the inalienable human rights to life, liberty, and the pursuit of happiness.

Many of my friends in the New Left hailed from a more privileged background, having grown up in America’s elite suburban enclaves. Although deeply committed to the pursuit of social justice, equality, and peace, they increasingly drew their inspiration from other revolutionary struggles abroad, especially the anticolonial struggles of the post–World War II era. I recall countless political gatherings in which the thoughts of Mao, Ho Chi Minh, and Che Guevara were called forth to provide guidance and spur selfless action. All of this was strange to me, having been raised to believe that our homegrown American revolutionaries were the inspiration for all other anticolonial struggles over the past two centuries.

The American Bicentennial Celebration offered a unique opportunity for a younger generation to reconnect with America’s radical promise—especially when the official White House observance, overseen by President Nixon and a legion of commercial boosters, appeared to be more rooted in the monarchical trappings of aristocratic privilege than in a sense of economic and social justice more befitting those early American heroes we were supposed to be celebrating.

Our plan was to turn the Tea Party anniversary into a protest against the oil companies. We were unsure whether anyone would come out onto the streets and join us. After all, there had never been a protest against big oil, so there was no way to predict what people might do. My fear of an embarrassingly low turnout grew as the snow began to fall. During the 1960s, we always scheduled antiwar protests in the spring because we were more likely to draw a crowd. In fact, none of the seasoned activists organizing the event could recall a single mass protest ever held in the dead of winter.

As I turned the corner onto Faneuil Hall, I looked in amazement. Thousands of people were lining the streets leading to the building. They were hoisting signs and banners reading Make the oil companies pay, Down with big oil, and Long live the American Revolution. People were packed into the hall chanting, Impeach Exxon.

After I delivered a short speech calling on the protestors to remember this day as the beginning of a second American Revolution for energy independence, we took to the streets, following the exact route that the tea partiers from two hundred years ago took to Griffin’s Wharf. Along the way, thousands more Bostonians joined our ranks—students, blue-collar workers, middle-class professionals, and entire families. By the time we reached the docks where the official Salada Tea Company ship (a recreation of the original ship) was anchored, upwards of twenty thousand protesters lined the waterfront, chanting, Down with big oil. The protest overwhelmed the carefully orchestrated ceremony. An armada of local fishing boats from towns as far north as Gloucester broke through the police blockades and headed toward the Salada Tea ship, where federal and local dignitaries awaited the official ceremonies. Fishermen came aboard, seized the ship, climbed the masthead, and began throwing empty oil barrels, rather than tea crates, into the river, to the cheers of thousands of protestors. The next day the New York Times and other newspapers around the county recounted what had happened in Boston, dubbing the event The Boston Oil Party of 1973.²

THE ENDGAME FOR THE SECOND INDUSTRIAL REVOLUTION

Thirty-five years later in July 2008, the price of oil on the world market peaked at a record $147 per barrel.³ Just seven years earlier, oil was selling at under $24 per barrel.⁴ In 2001, I suggested that an oil crisis was in the making and that the price of oil might tip over $50 per barrel within a few short years. My comments were greeted with widespread skepticism and even derision. Not in our lifetime came the retort from the oil industry, as well as most geologists and economists. Shortly thereafter, the price of oil dramatically rose. When the price went over $70 per barrel in mid-2007, the price of products and services across the entire global supply chain began to rise as well, for the simple reason that virtually every commercial activity in our global economy is dependent on oil and other fossil fuel energies.⁵ We grow our food in petrochemical fertilizers and pesticides. Most of our construction materials—cement, plastics, and so on—are made of fossil fuels, as are most of our pharmaceutical products. Our clothes, for the most part, are made from petrochemical synthetic fibers. Our transport, power, heat, and light are all reliant on fossil fuels as well. We have built an entire civilization on the exhumed carbon deposits of the Carboniferous Period.

Assuming our species somehow manages to survive, I often wonder how future generations living fifty thousand years from now will regard this particular moment in the human saga. They will likely characterize us as the fossil fuels people and this period as the Carbon Era, just as we have referred to past periods as the Bronze and Iron Ages.

When the price of oil passed the $100-per-barrel mark, something unthinkable just a few years earlier, spontaneous protests and riots broke out in twenty-two countries because of the steep rise in the price of cereal grains—tortilla protests in Mexico and rice riots in Asia.⁶ The fear of widespread political unrest sparked a global discussion around the oil-food connection.

With 40 percent of the human race living on $2 per day or less, even a marginal shift in the price of staples could mean widespread peril. By 2008, the price of soybeans and barley had doubled, wheat had almost tripled, and rice had quintupled.⁷ The United Nations Food and Agricultural Organization (FAO) reported that a record one billion human beings were going to bed hungry.

The fear spread as middle-class consumers in the developed countries began to be affected by the steep oil price rise. The price of basic items in the stores shot up. Gasoline and electricity prices soared. So did the price of construction materials, pharmaceutical products, and packaging materials—the list was endless. By late spring, prices were becoming prohibitive and purchasing power began plummeting around the world. In July of 2008, the global economy shut down. That was the great economic earthquake that signaled the beginning of the end of the fossil fuel era. The collapse of the financial market sixty days later was the aftershock.

Most heads of state, business leaders, and economists have yet to fathom the real cause of the economic meltdown that has shaken the world. They continue to believe that the credit bubble and government debt are unrelated to the price of oil, not understanding that they are intimately tied to the waning of the oil age. The longer the conventional wisdom remains mired in the belief that somehow the credit and debt crisis are merely the fault of failing to properly oversee deregulated markets, world leaders will be unable to get to the root of the crisis and fix it. We will revisit this point shortly.

What occurred in July of 2008 is what I call peak globalization. Although much of the world is still unaware, it is clear that we have reached the outer limits of how far we can extend global economic growth within an economic system deeply dependent on oil and other fossil fuels.

I am suggesting that we are currently in the endgame of the Second Industrial Revolution and the oil era upon which it is based. This is a hard reality to accept because it would force the human family to quickly transition to a wholly new energy regime and a new industrial model, or risk the collapse of civilization.

The reason we have hit the wall in terms of globalization is global peak oil per capita, which is not to be confused with global peak oil production. The latter is a term used among petro-geologists to denote the point when global oil production reaches its zenith on what is called the Hubbert bell curve. Peak oil production occurs when half of the ultimately recoverable oil reserves are used up. The top of the curve represents the midpoint in oil recovery. After that, production drops as fast as it climbed.

M. King Hubbert was a geophysicist who worked for the Shell Oil Company back in 1956. Hubbert published what has subsequently become a famous paper forecasting the peak of oil production in the lower forty-eight states sometime between 1965 and 1970. His projection was ridiculed by colleagues at the time who noted that America was the leading producer of oil in the world. The very idea that we might lose our preeminence was unthinkable and dismissed. His prediction, however, turned out to be correct. US oil production peaked in 1970 and began its long decline.⁸

For the past four decades, geologists have been arguing about when global peak oil production will most likely occur. The optimists believed, based on their modeling, that it would probably happen sometime between 2025 and 2035. The pessimists, which included some of the leading geologists in the world, projected global peak oil to occur between 2010 and 2020.

The International Energy Agency (IEA), a Paris-based organization that governments rely on for their energy information and forecasts, may have put the issue of global peak oil production to rest in its 2010 World Energy Outlook report. According to the IEA, global peak production of crude oil probably occurred in 2006 at seventy million barrels per day.⁹ The admission stunned the international oil community and sent shudders down the spine of global businesses whose life line is crude