Walter S. Measday is Chief Economist of the Senate Antitrust and Monopoly Subcommittee. He received a B.A. and Ph.D. degrees in economics from the College of William and Mary [sic - Ph.D. from MIT]. He has taught at the University of Maryland and has worked as a consultant to the U.S. Senate on antitrust and monopoly issues.
From Mineral Policies in Transition, proceedings of the 1977 American Institute of Mining, Metallurgical, and Petroleum Engineers (AIME) Mineral Economics Symposium, November 8-9, 1977, edited by John H. DeYoung, Jr. Dr. Measday made opening remarks, after which he participated in the panel discussion.
My remarks do not represent the Anti-trust Subcommittee or any particular member of the Subcommittee. I think what has been overlooked so far on the question of divestiture is the importance of competition in the economy. Oil prices are controlled today, established by a cartel—in fact, I am one of those people who believe that oil prices worldwide have been controlled or influenced strongly by a cartel for a good long while. The only difference is that we now have OPEC instead of the Seven Sisters. Given this control, it is important to have any possible substitutes for oil produced under competitive conditions. This is the real issue.
Suppose that you have two industries with some degree of substitution between their products. One industry can be controlled by a monopolist. If the other industry is highly competitive, the monopolized industry can charge very little more than a competitive price. Those of us who favor divestiture favor keeping the alternative energy sources as competitive as possible. We are worried about the oil industry—what Jim Broadus referred to as the "seamless web". You do not really have low concentration in oil; you have a fairly high degree of concentration—not indicated by standard concentration ratios. We have 16 companies producing about 70 percent of the crude oil on a gross operator basis. But each of these companies is tied in with every other company in a variety of ways. Joint ventures in oil operations are a particularly troublesome problem. I do not think that there would be any question about antitrust intervention if, say, General Motors and Ford got together to buy Republic Steel and operate it jointly. I am sure that Mr. Shenefield would intervene, probably without any opposition from the economic policy office in his shop. On the other hand, we have tolerated dozens of huge joint ventures in the oil industry. We uncritically accept all sorts of reasons for them.
The fact is, we know very little about the magnitude of joint ventures, except in one case. Standard Oil of California and Texaco have had the Cal-Tex group of companies for the last 40 years, going back to their original operation in Saudi Arabia. And in those 40 years they have published balance sheets and income statements separately for the Cal-Tex group. In recent years, the Cal-Tex group of companies has been providing about half of Texaco's net income, and probably about 60 percent of the net income of Standard Oil of California. Well, if two people share most of their income from a common source, are they partners or are they competitors? Are you going to see them really go out there and knock each other over the head in some area where they presumably compete? Or after 40 years, do they get to know each other pretty well, particularly when each of them has a vested interest in a cooperative sector which may be larger than the competitive sector? This seems to be very typical of the operations of the major oil companies. You have heard it all before and you will hear it again.
We are concerned about the extent of oil company operations in coal and in uranium for these very reasons. We do not want the same patterns of behavior to develop in the alternative energy sources. We think it is advisable to keep these alternative energy sources under separate ownership. This is something which has not been done. Michael Canes was talking about the concentration, the degree of oil company penetration into coal, for example. He said that if you take the full coal base of 397 million metric tons (438 billion short tons) of demonstrated reserves, the oil companies' proved reserves of coal look pretty small. But total reserves are misleading—they include unleased acreage and unrecoverable coal. The fact is, if you look at the reserves which are privately leased now, the oil companies—from virtually nothing 10 or 15 years ago—have gotten about 40 percent of the privately held coal reserves, or a somewhat higher percentage if you leave out the captive reserves of the steel companies and the utilities. I think that this is a significant degree of penetration. And if you extrapolate forward a little bit, you see them moving on. They have a much higher percentage of the low sulphur western reserves, for example, which will be of growing importance.
Now again, both Darius Gaskins and Michael Canes said that the oil companies have been developing these coal reserves. I just do not think that is true. Initially, there were increases in output after oil companies took over coal companies—for example—after Continental took over Consolidation and after Occidental took over Island Creek. But you have to look at what the coal companies were doing independently before they were acquired. Consolidation more than doubled its output from 1960 until the time it was acquired by Continental. Island Creek did the same thing, more than doubled its output (even allowing for an acquisition) from 1960 until the time it was acquired by Occidental. At the time of acquisition, Consolidation was developing more new mines, with contracts for their output. Well, obviously if Consolidation had several mines under construction, it is unlikely that Continental Oil at the moment of the acquisition would say, "We are not going to finish these mines." The momentum of that preacquisition growth carries output up for several years after the oil company has taken over. Since that time, though, production has dropped off. Between 1970 and 1976, the output of the five companies that were operated by oil companies in 1970 dropped by 13 percent at a time when the industry was expanding by about 20 percent. Granted, they are heavily involved in eastern mines where there has been a tremendous drop in productivity. Still, one of the stellar performers has been Peabody Coal. Kennecott really pushed up Peabody production. Even after the threat of divestiture became a certainty, the company continued developing Peabody's western mines. But there are oil companies which hold large western leases which are not developing any production at all.
Now I am not charging that the oil companies have been trying to hold coal production down. What I am saying is that you cannot prove from the record that oil company investment has done anything at all to improve coal output; that it has been output-increasing. There are two ways you can invest in terms of what shows up in your financial balance sheet. One way is to spend funds on development of the resources you have. The other is to spend funds to acquire additional resources. I think that if we could see the books of the oil companies, probably we would find that the acquisition of additional resources has been somewhat more important than development of the resources already in hand. Exxon, for example, now has 7.6 billion metric tons (8.4 billion short tons) in proved coal reserves. They have a production target of 36 million metric tons (40 million short tons) by 1985. But at that 36-million-metric-ton target, they have over two centuries of coal production. Exxon has acquired gigantic reserves, and this is the sort of thing we are concerned about.
The same situation exists in uranium. Oil companies have spent enormous sums of money in acquiring uranium reserves, perhaps a lot more than they have in developing uranium output. I am not saying that this is necessarily bad, but I am saying that you cannot from the record show that any particular social good has so far come out of the oil company movement into alternative energy sources.
Now the question is: Can divestiture be accomplished? When you are talking about horizontal divestiture, of course, divesting of coal and uranium activities would not, in any sense, change the operation of an oil company as an oil company. The oil company would still continue to operate as an oil company, so the viability of the original venture would not be affected. You would force them to give up something. The real difficulty in coal divestiture today might be how to divest undeveloped reserves. Perhaps Darius Gaskins suggested an answer—to let them build up viable operations and then make them spin off those going concerns. It is awfully hard to divest reserves where you do not have a going concern. It is easy if you have a going coal company. I believe divestiture can be handled very easily, and I do not see from the record that society would be any worse off. What I am saying here is that we can make some kind of a social judgment. There are risks involved in letting the oil companies move too heavily into alternative forms of energy. There are degrees of risk, I think very serious ones. I would suspect that there could be a slowdown in coal liquefaction research under the oil companies. Many people who talk about liquefaction seem to think in terms of creating some kind of a synthetic crude oil as a refinery feedstock. I submit that creating a synthetic crude oil, with the hundreds or thousands of hydrocarbons you find in a barrel of crude—so you can run it through a conventional refinery and start off with some propane and butane at the top of the barrel down to petroleum coke at the bottom of the barrel—is almost impossible. Coal liquefaction, to the best of my knowledge, is going to go to a fuel grade product which you can produce without any further refining. It is going to make obsolete present refining techniques. And as long as companies have their investments in refining, it is rational for them to try to earn as much from those investments as possible, and to keep them as long as possible.
There are real dangers for the future leaving the oil companies in. I cannot see any great social benefit which comes from having coal mines operated by oil companies. One of the problems in the past, I think, is that such mines have not been rapidly developed because the oil companies were shocked at the low rate of return in coal. They are used to a high rate of return in crude oil production, compared with coal in the days when the mining industry was earning 5 and 6 percent, or less than that, on its investment. When oil company capital could have made a difference it was not put into development. Now the oil companies are starting to invest because coal profits have gone up, and the rate of return on coal investment is very good. It seems to be self-evident that over the next few years—the intermediate term and the long term—investment in coal is going to be highly profitable, and you do not need the oil companies to put the capital up. I am sure that any number of banks would be happy to supply the financing for coal mines today, given the future of coal as an energy source.
My point is that there does not seem to be any real benefit that comes out of oil company ownership. If there are risks involved in oil company ownership of alternative resources and there are no offsetting social benefits from that ownership, then I think the rational thing to do is to proceed with divestiture.
I would like to direct a question toward Darius Gaskins, and perhaps Gilbert Dwyer. We have one concrete proposal for writing a statute that requires a spinoff of a company to the shareholders after the investment is established. I thought that one of the reasons for investing in new areas was to lead toward a diversification of the company to stabilize earnings, to generate the money that is required for exploration and early development. How are we ever going to get prudent companies to work toward developing something that is eventually going to be spun off, thereby eliminating the stabilized earnings that were the basis for diversification in the first place?
My proposal was that if there is some upper limit on how much coal or uranium oil and gas companies can hold, then once they reach that limit they have a finite period of time, say a year, in which they have to spin off the viable segments of their coal or uranium operation to their shareholders, and then they could continue to invest in coal. So my spin-off statute does not envision them giving up earnings from coal. It just means that once they get up to a certain size limit, they have to spin off to their shareholders. But the proposition that you raised here is a very interesting one, and it gets to a basic controversy about how a company should be run. Now my view is that a company should not be run for stable earnings, but it should be run to maximize the present value to the shareholders. If it turns out that the shareholders can diversify their portfolios by buying lots of different companies, it is typically inappropriate for a company to be run to have stable earnings. That is a bad management philosophy. Now I know managers like to go to shareholder meetings and talk about how stable their earnings are and about how they are rising uniformly. But efficient capital markets would have them operate differently. This is an old standard economic controversy, but it is my view that the stable earnings within a company are not a desirable norm for investment policy.
This proposition raises so many painful memories, I am almost reluctant to start talking about it. The price/earnings multiple of cyclical companies in the stock market is, as you all know, invariably lower than the multiple applicable to somewhat more stable sources of earnings. Anybody who tried to operate a company on the basis of an equity has got to recognize that penalty of cyclicality. In the interests of the stockholders, he has got to take appropriate steps to offset it to the extent possible. That is one of the reasons that we tried to achieve some vertical integration 15 years ago, and it is one of the principal reasons why we got into coal in 1968. The theory of maximizing earnings in the short term has some appeal; philosophically we all lean in that direction. But over the long term, you try to maximize earnings with some consistency, and that is a little different from what Darius Gaskins is talking about. The choice of the method of divesting Peabody Coal Company by Kennecott was probably one of the most exhaustively debated issues that I am aware of in corporate America. It was analyzed by investment bankers, by lawyers and by ethicists, and certainly by us managers and by the stockholders. The decision eventually to sell Peabody rather than to spin it off was a very fine decision. It was not one that was obviously and markedly and demonstrably better than the spin-off alternative. One can even now argue that the interests of stockholders would have been better served by a spin-off. Anybody who has looked at the financial condition of Kennecott, however, in the context of today's copper market would have to wonder seriously whether Kennecott was or could be a viable enterprise had it not had the advantage of the proceeds of the Peabody sale. And if you make the assumption that Kennecott stockholders, in the event of a spin-off, would have held both the shares of Peabody and the shares of Kennecott on a continuing basis—and that is an essential assumption—I think you would come to the conclusion that we did, which is that by selling it, the interests of the general body of stockholders are better served. It strikes me that the proposition that government can better, more effectively, more rationally, more morally, make this kind of a judgment than can a board of directors of a corporate institution, is perhaps the primary deficiency in Darius Gaskins' idea. Our directors had the greatest possible amount of information available, the greatest possible amount of emotional commitment, the greatest possible familiarity with the stockholders, the ultimate responsibility for the decision. And they had a very difficult time making that judgment. The idea that somebody without that degree of emotional involvement and without that degree of information could make a better decision frankly defies my ability to be amenable to the idea.
I would like to ask Walter Measday and anybody else on the panel a question about coal integration. I am pretty sure that no one develops a coal mine these days unless he has a market for the coal. And generally it is to supply a specific power station. If you assume that integration of any kind is sort of natural, wouldn't you say that the natural form of integration is to have power companies owning coal mines? I think the way it works, they have long-term contracts and profit-splitting, and the power company really guarantees the financing by providing the market. What is the role that an oil company really plays in this kind of triangular situation?
I would say this goes back, of course, to the whole question of the oil companies supplying capital, and I am just not sure how much capital they have put out. Exxon opened the first Illinois mine on the basis of a million-ton-a-year contract with Commonwealth Edison. It was project financed. You take the utility contract, you go to Continental Illinois and talk to Wallace Wilson, an expert on project financing, and he says, "Sure, we'll set the package up." You really don't have to rely on an oil company for financing. A couple of years ago, Mr. Wilson was interviewed by a coal trade journal. He said that medium-sized and smaller independent coal companies are great candidates for project financing. What you have is a contract with a utility which needs the contract because it needs your coal. It is designing the boiler unit to burn the type of coal that you produce in your mine, and so they do not really want to switch from that. The use of project financing eliminates a lot of the argument that the oil companies are going to put the money up. Of course, the utilities in some cases are also, as you know, integrating backwards into coal, and apparently using it for tax shelters.
The question of stability in earnings; I am not up-to-date on the beta coefficient, but it seems to me that investment analysts several years ago found the beta coefficient of a stock indicative of whether it was an appropriate investment. And my understanding of that is that a diversification of a corporate portfolio might, in fact, change the beta coefficient of the company. There might be some places where the beta coefficient stabilizes, and that is where you would propose that divestiture occurs. But does not the beta coefficient fit into your claim that stability has no affect?
I do not want to get drawn too much further into discussion, but the proposition is the following: That if a corporation attempts to stabilize their earnings and thus raise their beta coefficient—it turns out the beta coefficient is associated not with the variability of the stock, but with the covariance of that stock with respect to the market as a whole—but if they try to do something to monkey around with the beta coefficient to give themselves a higher price/earnings ratio, they can do that, but they are not necessarily acting in the shareholders' interests. The reason is that the shareholders can put together any portfolio they want, and so, therefore, when the company makes an investment, all it can do is satisfy some consensus view of the shareholders, whereas shareholders can adjust their portfolios in a superior manner. That is the basic proposition.
Let me get back to some remarks associated with getting government out of the board of directors business. I guess I do not know whether government is too far in or too little in, but I assume that Gilbert Dwyer would support doing away with all the Securities and Exchange regulations, doing away with public accounting, and doing away with most other regulations that we have developed in this country. I must point out that the rules regulating the sale of stock and the disclosure of information arose because there was a general consensus that profit-maximizing businessmen sometimes do not act in the best interests of their shareholders. I assume that your attitude towards government interference not being as good as the board of directors would lead you directly to the notion we should not have any regulations with respect to the sale of securities in the United States.
I do not think any rational businessman could hold to the view that in a complex society like this you can do without federal regulations. It is not simply a matter of immorality either. It is a matter of priorities, which are frequently best determined by society. In the environmental area, we have certainly a classic example of that. I do not mean to say we ought not to have any government intrusion at all. I think though that we ought to look at every new prospect of it with a basic suspicion, with a premise that if it can be avoided it ought to be, with the expectation that if it can be implemented to excess by government bureaucrats, it probably will be. If the prospect of another increment of regulation can survive those basic criteria, fine. We will learn to live with it.
If you feel that the oil companies should not invest their profits in oil because this makes them big and more monopolistic, and if they should not invest their money in coal or other energy sources because this makes them dangerous in that respect, what do you think they should put their money into? Also, do you think the government is competent to make this decision?
In the first place, I see nothing wrong with oil companies investing in oil and gas production. I think that is an excellent idea, and I would certainly hope that they would continue to do it, and do a lot more of it than they have been doing. I would like to see them fully develop the properties they already own. My problem here is that I think that investing in resources which are, in the intermediate-term or the long-term, actual or potential substitutes for oil and gas is dangerous. I have no great problem with Mobil investing outside of the energy field—although I do not agree with Mobil's trumpeting that they really need all the money that they are getting to find more U.S. oil and gas, while they are buying department stores. This is a gut reaction rather than an economic reaction. What I do not want them to do is invest in a manner which might restrain competition of some type in the future. Remember, this is a conservative viewpoint. I would rather rely on competition than more regulation. Gilbert Dwyer apparently is willing to try to live with more regulation. I think this is terrible. I feel very much like a fellow out at Stanford, Roger Noll. At a meeting out there a while ago, he favored horizontal divestiture because he did not want the Federal Energy Administration to get its hooks into the coal industry. And this pretty much is the way I feel. Let's try to preserve competition as an alternative to the march towards regulation which I think probably is inevitable.
Mobil hardly needs defending; they are quite capable of defending themselves. But I believe the statement that they have been making is that higher prices for oil or gas would induce them to spend more money on oil and gas development. That seems to me a sensible statement. Also, I agree with Darius Gaskins' judgment that oil and gas investment in this country is becoming a high-cost, or relatively high-cost, form of investment. Because of that, investment in oil and gas eventually must fall. And, there is no getting away from the implication that if oil companies are prevented from investing in alternate sources of energy, then there will be other things that they will invest in outside of energy. This may or may not be a good thing, but it cannot be ignored. Finally, it is not enough to simply say that we want to rely on competition. It is necessary, it seems to me, to examine carefully the record of the oil companies, retrospective as well as prospective, regarding their investments and so on, before judging whether competition is enhanced retarded by oil company entry into other energy markets. And I believe the record shows pretty clearly that competition is enhanced.
You made a statement regarding natural resource companies retarding development of resources. However, the Treasury Department, specifically Secretary Blumenthal, has been stating publicly that certain tax incentives are increasing the companies' production of natural resources and, therefore, they should be repealed to cut back on domestic production. The second question deals with the payout on dividends specifically mentioned by Darius Gaskins. How do you reconcile the conflict with the potential investment that is required of companies due to regulations of EPA and various other government agencies? And also, how is a company to increase their future investment and production if they do not reinvest in their present and future facilities?
I think I was probably speaking too quietly in my presentation because I did not mean to say that natural resource companies are retarding development of natural resources. I think that what you heard was part of a description of a hypothetical theory to justify horizontal divestiture policies. I do not necessarily believe it. I was just groping for a justification or an explanation for such policies, and in searching the literature for theoretical underpinnings, I was not able to find anything. So I had to patch together some makeshift theories. One of those makeshift theories was that if, for whatever reason, oil companies either face a set of investment opportunities out into the future or have particular expectations such that they would develop their coal more slowly than would independent coal companies, we might look to that reason as a justification for horizontal divestiture, or as an explanation for motivations to such policies. I certainly did not mean to make a claim that natural resources companies are retarding development of natural resources.
I shall try to respond to what I think is the second question. I think the argument was raised about future investment associated with environmental protection laws and health and safety laws and the need or desire to invest in maintaining existing facilities to continue to be able to produce oil and gas within that industry. That was not the point of my remarks. My remarks were: Look, we observe lots of investment by the oil and gas companies outside of conventional oil and gas. I think I understand why they are doing it, and if my notion of why they are doing it is correct, they are going to keep doing it somewhere. That is basically my point. It is true that every industry in this country has got to invest a lot to satisfy the health and safety rules. That burden is probably not any higher into oil and gas than it is in chemicals or some other industries.
I would like to add in answer to the first question that even if we did expect oil companies to develop their resources or certain reserves in their portfolio of resources more slowly than other companies, I do not think that necessarily means there is a competitive issue involved. It is like the problem of withholding in general. Competition can work just fine with companies deciding to develop later rather than now. In fact, one of the important results of the competitive process is supposed to be the selection by private companies, responding to profit motive, of when to develop what. It is the heart of economic decision; it's allocation over time. Just because a company decides not to develop now does not mean that there is a conspiracy or that there is a competitive problem that needs to be dealt with through structural relief.
My basic background is that of a research chemist, and I must confess I am not used to dealing with economists. In this months' American Chemical Society publication, there is a rather lengthy outline of a Mobil process, in which they use a synthetic zeolite that is produced by Union Carbide Corporation. They take methane gas, either natural methane or syngas, and they run it through this zeolite, and they come out with gasoline. Normal procedure is that policy is developed and research is started, chemical research. Then you go into engineering research. You make your operational decisions and you produce. Well, Mobil is making an operational decision as to whether they should use a fixed-bed operation or a fluid-bed operation. It appears to me this is an operational decision, and the technological tail is wagging the policy head. And what I get here this morning is that the head is so far from the tail they cannot feel the vibrations. Now what do you classify Mobil? A coal company or an oil company?
I am not familiar with the technologies you describe, but several of the oil companies claim that they are able to use things that they have learned in the oil industry in alternate fuel industries, and in particular in coal. And they believe that it aids them in such things as coal liquefaction and gasification. As to how Mobil should be classified, that of course depends on your purposes but it seems reasonable to me to classify them as an energy company. At the same time, I have done a little bit of research on just who is into the coal conversion business, and it turns out that while there are quite a number of oil companies doing research on coal liquefaction and gasification, they by no means are the majority of companies in the field. A number of equipment manufacturers, technology companies, research companies, and others are in there as well. Coal conversion technologies are among the most popular alternate fuel areas for oil companies, but they are a distinct minority there.
I think what Michael Canes has said is that really you do not have to be an oil company to provide the technology for the future. You do not have to be an oil company owning coal to do it. But just apropos of nothing, I would urge—just for fun if you are interested in this—that you should read Report Number Two of the Federal Oil Conservation Board, which I think was about January or so, 1928. This was a period when we were worried about running out of fuel. We were going to run out of oil and gas in the near future. There was discussion of the development of alternative energy sources: electric cars if we could build a better storage battery, development of a methanol fuel from agricultural waste, coal liquefaction, development of a gasoline type fuel from coal, and we were very close to it. The Germans had developed coal liquid fuels in World War I. Another was oil shale, and we were very close to that. I remember the methanol one. If gasoline ever hit 25¢ a gallon, methanol from agricultural waste would be a viable alternate. A few years ago—5 years ago maybe—the head of Continental Oil was telling the financial analysts in New York that they could produce a synthetic automobile fuel now and that it would only be a couple of cents more than the price of gasoline. And now they still say, "Oh, we just need a few more cents, a few more dollars on the barrel." I think we are going to do it. But I would really urge anybody interested in this to just look at that great thing the Federal Oil Conservation Board put out 50 years ago. You will get a little discouraged about technology.
Mr. Broadus, you mentioned in your initial presentation the antitrust implications of future federal leasing. I am wondering if you could give some insight as to the Justice Department's feelings in the Coal Lease Amendments Act and the provisions thereof.
I can give you my own feelings. Of course, I am happy with the requirement in the Act that federal coal leases be subjected to a review by the Antitrust Division for their competitive implications. And I am also happy with the requirement in the Act that the Justice Department report, with Interior, the state of competition in the coal and energy industries, because the more information that Congress has to work with on these matters, the better. I wonder sometimes about the information that has been used in the past. The Leasing Act, as you know, has not really brought about any increase in leasing. The program is in its second major review. There was a moratorium on federal leasing in the early 1970's, which began to expire last year and a program to get leasing under way was established in the Interior Department. Just about that time another review was cranked up and leasing is in abeyance again. Also, as I understand it, a restraining order by a federal judge will disallow any further long-term leasing until a new environmental impact statement is completed. I am involved in the leasing review program, and although I think it is a very good thing and that it certainly needs to be done, I am having a hard time figuring out exactly what standards the Division is going to apply to each lease to make a judgment about whether or not it should be permitted according to competitive criteria. I would like to ask Walter Measday, who in his talk suggested that the federal leasing program might be a solution to the set of problems he thinks may call for horizontal divestiture, in what ways the Act might be implemented to provide that solution?
I have no suggestion. The only thing that I am thinking here is that if, as it appears, the reserves—coal reserves, for example—under unleased federal lands amount to perhaps 40 percent of the mineable coal, then federal policy could possibly in the future be pro-competitive. I realize there are all sorts of problems, but you can develop a pro-competitive policy. You might say, for example, that Exxon has enough coal already; we are not going to let Exxon have any more coal. There might be litigation over it, but what I am saying here is that there is a very large amount of unleased federal coal, and I think that we should do two things: Lease it in a way that it will enhance competition, and also lease it with strong provisions to insure development. No more of this business of letting companies hold leases for years without doing anything with them, which has happened in the coal industry.
This brings up another issue, a broader issue that I would also like to mention. I see a trend—and I guess it is coming from the Congress and ultimately from the population—to attempt to use the antitrust laws as a regulatory instrument. I think implicit perhaps in Michael Canes' definition of competition is the danger that this will happen, that we will attempt to increase output of some industry by applying antitrust pressure. Somehow as a society, it seems, we would like more coal and less of something else. Therefore, we are going to concentrate antitrust enforcement in coal, with the understanding that a more competitive structure brings about increased output. I do not think that that is a fair thing to expect from the anti-trust laws. My understanding of the antitrust laws is that they are designed to structure the playing field, if you will, and the rules under which decisions are made by private enterprises, based on the belief that the allocations that result from the competitive process will be optimal. Society may collectively decide that it would like output results that are different from those that would come under the competitive process—and I believe that is a completely legitimate decision for the collective populace to make. Back to Adam Smith again, the private enterprises in this country operate under the protection and as clients of the population, and are licensed to operate by the state. Therefore, I think it is absolutely legitimate for the state to condition the license in any way that the public sees fit. But in terms of making decisions to alter output away from one resource and in favor of another, that can best be done through some other kind of regulatory solution, or through a restructuring of incentives through taxes and subsidies. I do not think that the antitrust laws are really an appropriate vehicle for doing that—unless it can be shown that output is being restrained in an anti-competitive fashion.