2 Industry
Vickers' industrial experience took the form of some 16 months with Shell, undertaken directly after the completion of his undergraduate degree in 1979. This was at a turbulent time.
The period 1979-1981 witnessed a great surge in oil prices. The macroeconomy's two-way interactions with energy prices appeared quite manic. Then, as now, they were not particularly well understood. Shell is an Anglo-Dutch giant. As fossil fuel exporters come lately to the game, both its parent countries experienced sharp real exchange rate appreciation. Most Organisation for Economic Co-operation and Development (OECD) countries saw rising unemployment, as well as elevated inflation.The aftermath of the Organization of the Petroleum Exporting Countries' (OPEC) oil price hikes offered a deeper insight about the nature and teaching of economics. Keynes's General Theory in 1936 led to the division of our subject into two separate sub-disciplines, micro and macro. From the Second World War onwards, in universities across the world, professional economists would all too often get encouraged to specialise on one side or the other of this mental canyon. Much of microeconomics became a land of topology, lemmas and theorems directed formally at narrow issues in sharp focus. Much of macroeconomics degenerated into a crude form of impressionism, with vivid splashes of colour around little more than a sad little income-expenditure diagram view of the world.
Vickers is one of many economists who considered that development as retrograde. Microeconomics provides the best instruments for analysing problems logically and systematically. Macroeconomics offers the grandest canvas for portraying those problems. The way that these two areas have for so long been taught is unhelpful, because it makes them seem distinct and unrelated. But in fact, they are complementary.
Vickers once suggested half-jestingly in conversation that good macroeconomics might be defined as that branch of microeconomics that deals with the mechanics of aggregation. He agreed with Robert Solow's oft-quoted opinion, that the absence of micro-foundations in macro was probably much less alarming than the absence of macro-foundations in micro. Reflections on the oil crises of the 1970s revealed the essential unity of economics.The oil markets were exceptionally interesting for a young economist then. Most of the raw material was extracted in a few countries with low costs, but there was a fringe of smaller producers where costs, both fixed and variable, were quite large. The products were not greatly differentiated. Competition was evident, but qualified. In some respects, its market structure resembled a classic oligopoly. Countries were quantity setters, with many attempting to control prices, sometimes with great success for a while, within the umbrella of an international cartel (OPEC). Vertical separation was a prominent feature: transportation, refining and selling were the preserve at that time of just seven huge companies, of which Shell was one.
Since oil in the ground is an asset, and reserves are subject to an unknown upper limit, intertemporal choices and uncertainty are central. Vickers' experience with Shell and the enigmas of the oil markets built a firm foundation for his later research on the dynamics of oligopoly. Section 5 of this chapter will consider his path-breaking papers with Harris and others on patent races and innovation in duopolistic environments. Pondering oil markets in 1979-1980 may well have helped to influence that research agenda.