Watching CNBC this morning, I saw a very amusing segment about OPEC. The story being discussed was today's news that OPEC is maintaining oil quotas. But the side story was about a conversation between their correspondent Melissa Francis and Saudi Arabian Oil Minister Ali al-Naimi. While walking back to his Vienna hotel with him, she made the mistake of referring to OPEC as a cartel. Here's the video, and the transcript:
Francis: When do you think we'll hit that $75 to $80 range that it seems like almost everybody in the cartel believes is the equilibrium price range?
al-Naimi: You have to be careful calling OPEC a "cartel." I resent that. "Cartel" does not apply to OPEC. I know the press uses "cartel" in a derogatory manner, but it shouldn't be.
Francis: What's a better word?
al-Naimi: It's an organization.
I think the mafia likes to be called an "organization" too. Afterwards, he complained that the press doesn't call the G8 and other organizations (like the auto companies) a cartel. Francis then quipped that "cartel" must be the new "c" word.
But this actually raises a question: is it fair to call OPEC a cartel? Just to get technical, I thought it might be useful to dust off my old textbook from Econ 101. Microeconomics by Michael Parkin defines a cartel as follows:
A group of firms that has entered into a collusive agreement to restrict output and increase prices and profits is called a cartel.
Call me crazy, but I can't see how that definition could much more accurately describe OPEC. They're a group of firms that meets and agrees to increase or restrict output of oil. Often, that leads to an increase in prices and/or profits.