Any country pursuing economic liberalisation could learn much from America's successes. But, these days, China might learn more from America's failures. In booming Guangdong, energy price controls have forced lorry drivers to wait in long lines for diesel fuel. Because Beijing forces oil refiners to sell their products at prices well below what it costs to produce them, the refiners have cut back production capacity, resulting in long queues at the pumps. 'Oil futures are near US$100 [a barrel], but the price we sell at is only US$60. We are still losing money,' a Sinopec executive told The Wall Street Journal last month.
For 17 months, planners kept Chinese oil prices fixed, while the true market cost skyrocketed. Now, thankfully, the government seems to have got the message. At the beginning of last month, Beijing raised fuel prices by roughly 10 per cent, in the hope of ending the shortages. It helped - but only allowing prices to return to market levels will restore a healthy equilibrium of supply and demand.
China's policies have precedents in America, and they're not pretty. In 1973, the oil crisis induced the US government to pass oil price controls, which most Americans knew better as long queues at petrol stations. Then, in 1979, the Iranian revolution disrupted world oil supply for the second time in a decade, creating another big spike in prices. US president Jimmy Carter instituted price controls again, resulting, as before, in long queues.
Drivers waited hours to fill up their cars, often in lines hundreds of vehicles long. In the state of Maryland, governor Harry Hughes proposed an 'odd-even' system of rationing, under which cars with odd-numbered licence plates could fill up on odd days, and cars with even-numbered plates did so on even days. It was bizarre, and it certainly wasn't popular.
And, of course, once a government begins to control prices and ration scarce goods, it's hard to stop. It didn't take Beijing planners long to recognise that the price controls were hurting their own oil companies but, instead of allowing them to charge what the market would bear for the products, they tried to compensate the companies for the losses. And, so, the lunacy of the controls compounded itself.
'The government forces state-owned or state-controlled firms to absorb losses that analysts say are now running at up to US$10 a barrel on imported crude,' John Ruwitch wrote recently in the International Herald Tribune, so 'for the past two years, [Beijing] also doled out hefty year-end compensation to Sinopec, the worst hit'.