Wednesday, December 23, 2009

The Prize

Yesterday I started reading The Prize during my flight out to Colorado. I've read about 100 pages and so far it's excellent. The development of the oil industry is an amazing story of capitalism and the entrepreneurial spirit it unleashes. This excerpt, about the development of oil in the Dutch East Indies, provides some insight into the enormous sacrifice, drive and determination of the industry's pioneers:
When he arrived at the drilling site in 1891, [Kessler] found the entire enterprise in chaos, with everything, from the equipment shipped from Europe and America to the local finances, in total disarray. "I do not feel very cheerful about this business," he wrote to his wife. "An enormous amount of money has been lost by precipitate action." The working conditions were awful. After days of nonstop rain, the men sometimes labored in water up to their waists. The site ran out of rice, and a team of eighty Chinese workmen had to wade and swim to a village fifteen miles away to bring back a few sacks. There were also the inevitable pressures from Holland to speed things up, to stick to schedules, to keep the investors happy. Somehow, working both day and night, often racked with fever, the obsessed Kessler forced the pace.

...All sorts of obstacles had to be overcome, including the arrival of almost three hundred marauding pirates from another part of Sumatra, who temporarily cut communications between the drilling site and the refinery and then set fire to some of the outbuildings with, ironically, the traditional oil torches that had first caught the eye of Zijlker more than a decade earlier. Yet, no matter what the difficulty, Kessler kept pushing. "If things go wrong," he wrote to his wife, "my job and my name are gone and perhaps my sacrifices and my extraordinary exertions will be repaid with censure into the bargain. Heaven preserve me from all that misery."
Similar stories of misery and exhaustion can be found in the early exploration efforts in Pennsylvania, Texas and Baku. So what drove these men? What was the motivating force which enabled them to endure such hardships? Mostly profit and the thought of amassing vast fortunes. In the process of trying to accumulate wealth, however, they brought a product to market which enabled consumers to light their homes more effectively, safely and cheaply than previous methods.

The free market, meanwhile, ensured that competition was fierce, and profits never guaranteed. A number of key figures, such as James Guffey and John Galey who discovered the country's first "gusher" at Spindletop, died near penniless. The supply generated by the competition drove the price of oil down to only pennies per barrel. Those who prospered often did so only through merciless cost containment. John Rockefeller was said to examine costs down to three decimal points.

In addition to lowering prices, competition also spurred a commitment to excellence. Rockefeller named his company Standard Oil in order to drive home the point that his product adhered to an exacting standard, which would burn safely and was less prone to exploding than that of other firms. Competition also drove companies to innovate, leading to the development of the oil pipeline -- far more efficient than transporting barrels -- and the advent of tanker ships to traverse vast distances.

While reading the book I couldn't help but be reminded of the current health care debate and the demonization of profits, the supposed virtue of government regulation and the alleged evils of the free market. Lower costs, improved quality and innovation in the oil sector were all spurred by the profit motive and a free market. These are the forces which could produce similar results in health care. Rather than harnessing them, however, our politicians busy themselves designing ever more elaborate restraints to keep such forces at bay.

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