Is there a General Electric economic model for the new America?

Posted on June 26th, 2011 in Economy by Robert Miller

General Electric Logo (GE)General Electric (GE) is the most recognized brand in the world, and some claim that its logo has a value of $48 billion, though it’s unclear to me how that value estimate is derived. In the past the company was well known as a manufacturing giant which produced jet engines and nuclear reactors though most Americans know GE through their manufacture of home appliances and light bulbs. GE has a very storied history to its formation, as its founder was Thomas Edison who first formed the company in 1890 as the Edison General Electric Corporation. It was one of the twelve original companies selected for the  Dow Jones Industrial Average in 1896 and is the only remaining original company on the Dow. At one time GE also founded and owned the Radio Corporation of America (RCA) and owned NBC Universal, but now shares in that ownership with Comcast. The company is a global, multinational corporation, whose influence rivals that of many governments with 287,000 employees worldwide. GE spends more on lobbying in the United States than any other corporate entity. When GE speaks, others listen and it pays off as GE has one of the lowest corporate tax rates of any major company operating in the United States.

GE was recently in the news as Americans were outraged to learn that for the year 2010 GE paid no U.S. Federal income tax and and in fact, received a tax rebate of $ 3.2 billion. GE’s current CEO, Jeffrey R. Immelt serves as the chair of the President’s Council on Jobs and Competitiveness. The purpose of this committee is to make suggestions for changes in corporate tax laws by closing loopholes in the tax code. But can a company that spends more money on lobbying than any other organization, whose efforts we must assume include those aimed at further reducing their corporate tax burden (so the company can report a higher profit, which is the sole function of a CEO) really give objective advice on closing corporate  tax loopholes? An earlier comment on the tax breaks for GE as well as a bit of their history has already appeared in these postings.

Less well known than the GE logo is the company’s history of grooming Ronald Reagan and converting him from an FDR Democrat (he voted for FDR four times) to a rabid conservative, who, as a figurehead Governor of California and then President of the United States, introduced runaway tax cuts and corporate gifts that initiated, among other transitions, the corporate merger mania and the beginnings of dismantling American manufacturing. Reagan was for many years the public face of General Electric through General Electric Theater and Death Valley Days: his indoctrination was so complete that he absorbed the core values of GE and the company was a major benefactor of Reagan’s new tax policy once he was elected to the Presidency. Citizens for Tax Justice estimated that the 1981 tax law pushed through by Reagan yielded in excess of $ 1 billion in additional tax savings to GE alone over the subsequent half decade. The tax savings were not put into plant equipment and improvements to make the company more efficient, but instead went into corporate mergers and the loss of American jobs as GE shifted many of its operations overseas.  It’s that overseas shift in jobs the gets our attention here.

It is always worth looking at the social values of a multinational giant like GE when they invest their money overseas. As these companies take away jobs from Americans, gaining lower wages workers and bigger profits, do the communities in which they invest derive improvements in their community life and if not can the lack thereof be laid at the feet of GE or any other multinational corporation? When investing in emerging economies, do the multinationals help create cities like those in 20th century America or do they prefer those that can be exploited like American cities were in the 19th century, with low wages, poverty and slum conditions of living? Was America just a stopoff center for the evolution of the multinational corporation? We hear about the lost jobs in America, but how well off are the foreign communities  when a firm like GE invests in their local and national economy? Does their presence raise all boats? Does a giant corporation like GE have social responsibility to a community in which they invest and if not, isn’t that a violation of their obligations when they apply for a corporate license? Wasn’t one of the original defining characteristics of a corporate entity based on the premise that granting a corporate license was done to facilitate public benefits?  And just providing jobs isn’t enough. We need worker safety and benefits, including health care, retirement obligations and worker retraining if the corporation decides to leave. Many of these options are no longer considered to be those of a corporation if they choose to leave the United States and locate in other countries, while continuing to make profits in the United States. But the situation is very different in European countries, such as Germany.

Enter two players who can shed light on this weighty question. The first is Genpact (previously known at GE Capital International Services (GECIS)); it’s another global company whose operations in India are finance and accounting. Genpact went public in 2007 (symbol on NY stock exchange is “G”) and GE has been reduced to a major share holder rather than outright owner.  The second stage entry is Gurgaon India, a city that barely existed a few decades ago, located about 15 miles south of India’s capital, New Dehli. Jim Yardley, writing in the NYT had an extensive article on this city which resonated with me about this question (linked above)–the question of American corporate responsibility to the foreign communities in which they  invest. On the one hand Gurgaon has become a picture of wealth and prosperity, boasting modern shopping centers and many large corporations have expanded their space and development of the city and in the process outsourced many jobs that once resided in the United States.

But Gurgaon is a city with two faces. While displaying an image of rapid growth and prosperity on the one hand, it is also a city of extreme poverty, residing in basically the same space as its far wealthier counterpart. Yet, while two widely disparate social classes reside in the same city space, they co-exist with vastly different trajectories of their economic future. Perhaps no other city in the world has such a stark display of the mean raw edge of corporatism, the global economy and its indifference to poverty and public social needs. You can see some of the contrast in living conditions in a NYT  slide show illustrating the extremes of life in Gurgaon and the contrasts so visibly evident in a seemingly prosperous city, based on privatized services that all but skip the poor. The NYT article blames the clumsy democracy of India and Gurgaon, heavily bureaucratized with a corrupt  regional government as the reason for Gurgaon’s failure to establish better living standards for all of its citizens. But what are the responsibilities of the corporations that make huge profits in Gurgaon? Perhaps corporate failure must bear some of the responsibility for the diminished water supply as the water table that feeds bolewells is reduced each year. Perhaps corporate behavior should address the lack of  schooling among the poor and, instead of paying off politicians to hide miserable conditions like poor education and filthy living conditions, the citizens of Gurgaon should rise up to demand greater attention for their needs and try to establish a more uniform standard for the basic  living conditions of all members of Gurgaon? So, an alternative explanation to the cause of Gurgaon’s widespread poverty is that corporate giants like GE have failed to meet their fundamental ethical obligations as members of the communities in which they invest. To be sure there is a shameful side of government behavior, with deep corruption and inefficiency, but isn’t this among the issues that should be of concern to the corporations of Gurgaon that make money there?

Today Gurgaon is sometimes referred to as the “United States of Gurgaon,” a rapidly expanding city in which Genpact, Coca-Cola, PepsiCo, Motorola, Ericsson, Nestle of India and many other companies operate in a city in which outsourcing has provided about 500,000 jobs. Although it barely existed before 1979, the city now has a teeming population of 1.5 million and is one of the most rapidly expanding cities in India. Next time you talk with someone in customer service or technical support, and they have an Indian accent, ask them if they are from Gurgaon.The rapid expansion and poor services for the city has been blamed on a government that can be manipulated and is seemingly incapable of significant city planning.  One of the characteristics of this city is that the corporations operate outside of government for almost all of their needs, including water, which they get by digging borewell holes, electrical power from privately owned generators and even security protection, with 12,000 private security personnel. In contrast, the village of Gurgaon is an urban slum, with open sewers, polluted water, and impoverished living conditions that are in stark contrast to the other wealthy life styles available to those who participate in corporate profit making.

You can imagine that Gurgaon is a model of how corporate America would like to see United States cities positioned, where corporate wealth leads to a vast and increasing distinction between the wealthy and the rest of us. The Republican budget recently proposed by Paul Ryan, written by the American Enterprise Institute, would force America to make a giant leap backwards towards the Gurgaon-American model for our cities, with restricted services, emasculated government and crumbling infrastructure. In case you haven’t looked around you, we already qualify for the area of crumbling infrastructure part. There isn’t a road in Minnesota that doesn’t have a string of potholes and bridge safety is a huge issue after the collapse of the I35 bridge in Minneapolis a few years ago. In the meantime, companies like GE would benefit by diminished corporate taxes and enhanced dominion over a limited government whose functions are primarily defense of the nation against external enemies, imaginary or real. It may seem far fetched to think of Gurgaon as a model for a future American city, but with increasing privatization of our government functions, how can we avoid this futuristic vision from establishing itself in America and consuming our country, just as it is consuming India, where rural peasants struggle to survive on $2 a day and find themselves in the majority but completely disconnected from any political power. Keep in mind that in America, the polls consistently show that Americans favor social structures such as labor unions, Social Security, Medicare and Medicaid. Yet, these are the very attributes of our culture that the Republican party, in its Tea Party iteration, are willing to take away for the sake of improved corporate profits and the enhanced prospects of one party rule. The election of 2012 will reveal to us how far down that road we have traveled. Will we step back from a corporatist future and the momentum for converting of our cities into Gurgaon-like entities or will we take another step forward and become more progressive and inclusive in our social policies? For me, and for many others, two giant tapestries will be used to paint the 21st century, including the one that we will use to bring corporate power into an alignment that better serves people, while the other is waiting for us to reveal our plans for the global climate change that is already upon us and already demands our attention. Denial at this point amounts to a social crime.

RFM

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Is the energy crisis here yet?

Posted on June 9th, 2011 in Economy,Energy by Robert Miller

Fig 1 Oil Production vs Imported Oil

Everyone has heard of “peak oil,” the concept that oil reserves on our planet are finite, they are not renewable  and sometime soon, probably during this century, but perhaps sooner rather than later, the global supply of oil may reach a peak, such that the world’s production will begin to decline. By pursuing the costly option of processing Canadian tar sands as a source of oil, many feel we have effectively reached that point already. Peak oil doesn’t mean all the oil wells in the world will suddenly run dry. After all, the United States reached its peak oil condition in the early 1970s (Fig 1), after which our oil production has been slowly declining, as our need for imported oil rises to cover the difference. But never before, in the brief history of oil dependency, has so much pressure been put on oil production to meet the expanding demands of the global economy. The dynamic economies of China, India and other regions of Asia have created a new and alarming focus on oil production and future supplies. A bit of relief from this pressure of endless, accelerated expansion has come from recent estimates of the International Energy Agency (IEA). According to Michael Klare the IEA has reduced its estimate of global oil demand for this year by 190,000 barrels a day to 89.2 million barrels of oils daily. That reduction may prevent oil prices from reaching much higher levels later this year as some had predicted. This decline in demand was created by reduced economic activity that is global in character and is still strongly felt here in the United States. Despite what appears to be a breather in our demand for oil, the energy crisis is upon us and it has been exacerbated by several unanticipated events of this year.

According to the Department of Energy (DoE), the world supply of oil must grow 29% over the 2007 level by the year 2025, based on projections of economic growth. Even if we fall short of those needs, we are already in a phase of our oil consumption where the perception of scarce oil is keeping oil prices inflated and will probably continue to do so for the foreseeable future. So, we cannot expect to see oil prices drop significantly in the near term and speculation in oil futures is likely to keep prices high, even during times of reduced demand.

As if the oil shortage itself wasn’t enough of a problem, we are seeing other events in the world impact directly on the oil stress for now and well into the future. The earthquake and subsequent tsunami that decimated coastal communities in Japan, struck with unanticipated power and wiped out a substantial portion of Japan’s infrastructure along the coast, including the nuclear power plants at Fukushima. The DoE has estimated that loss of power at the Fukushima plant wiped out 6800 Megawatts of electrical generating power. To compensate for this loss, Japan has had to increase its oil and gas imports, resulting in additional pressure on the global oil and gas supply. What’s more, the Japanese have now revealed that they are eliminating plans for 14 new nuclear power plants and announced that they will have to completely revise their energy policy. How will their energy replacement needs be met? Although they have suggested that a significant part of their new energy requirements will come from wind and solar, it is clear that much of this new energy will have to come from oil, gas and coal. The disaster at the Fukushima plant has dramatically shifted other governments to rule against the nuclear option as a significant source of their future energy needs. In Germany Chancellor Angela Merkel, impacted by an electoral upset and massive public demonstrations, announced that the government will shut down all nuclear power plants by 2022. That’s just around the corner. How will Germany’s shifted energy demand be met? Most experts believe that increased fossil fuels usage will be an obligatory part of Germany’s new energy calculation. Furthermore, many people in the United States believe that the accident at Fukushima will force the nuclear industry in this country to eventually shut down, even though plans are in the works to meet part of our anticipated future energy needs through nuclear power. If we do proceed with a nuclear option, the cost for energy is likely to sky rocket because of additional safety requirements that will be demanded by the public.

Another on-going challenge relates to some of the serious drought conditions that are affecting many parts of the globe, including the United States. Hotter, drier weather means reductions in food production, which in turn places more stress on societies and generates the kinds of social upheavals that diminish government stability and place new demands on water resources to meet basic food requirements. One of the major causes of the Arab Spring was derived from food prices that significantly jumped because of global drought conditions. A hotter, drier environment reduces plant and food production capabilities. Drought conditions in many parts of the globe, including China, have resulted in less water flow in major rivers, which in turn means less energy from hydroelectric sources and that too puts additional demand on oil and gas reserves for compensation.

The Arab Spring has had unanticipated influence on the stability of Middle East oil production. This is an essential region of the globe, because all projections for future oil assume that the Middle East will increasingly meet the expanding needs of our global petroleum supply, particularly as other production sites diminish. Among the Middle East countries undergoing revolutionary change, only Libya is a major oil producer and their production of about 1.7 million barrels of oil each day can be compensated by other production sites. But, the problems facing the international oil supply go beyond Tunisia, Egypt, Yemen and Libya. If other oil producing states should diminish their output, the expectation is that Saudi Arabia will come to the rescue and increase their oil production. But, as Klare argues, for the Saudis to increase their oil production, they would have to invest $ billions in new oil facilities and right now the threat they feel from their own citizens, as a result of the Arab Spring, is being met by spending more on social needs, including those of a more demanding and youthful general population. The Saudi rulers are improving housing and making homes available for those at the bottom. They are investing in public works projects and also investing in an increase in military hardware, which we will gratefully supply. As the Saudis try to anticipate and relieve future social unrest, there are new questions as to whether they or other major Middle East oil-producing countries can meet the increasing global demands, especially in view of public unrest over governance, spending policies and the basic cost of meeting essentials like food. Already, there are other countries buying up huge tracts of land in the Middle East along the Nile Basin for the purpose of having adequate food supply for their own citizens. This could play out in land and water wars if arrangements are not carefully mediated. In these countries basic human needs are not being met and, in addition to feeling the new sense instability in our present and future oil supply, we can with certainty pinpoint the root cause of these problems in the Middle East–it’s called globalization: this means that the global attempt to transfer wealth from the poor to the rich is a policy failure and nowhere is this failure more evident than the impact it is having on the major oil-exporting countries, particularly in the Middle East. If we do not understand the origins of this dilemma, how in the world can we hope to help fix it?

RFM

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What causes tornadoes?

Posted on June 3rd, 2011 in Climage Change,Environment by Robert Miller

Hurricane Katrina

There is broad agreement among climatologists that hurricanes are related to global warming, because their strength and size can be correlated with ocean temperature. But, what about tornadoes? What about the recent tornadoes that we have witnessed in Alabama, Missouri, Oklahoma, Minnesota and Massachusetts?  These tornadoes seem like a new virulent species, with mile-wide funnel clouds and tens or hundreds of miles of complete destruction. It is natural to ask whether tornadoes are also related to global climate change. For the most part, climate scientists hesitate to make any suggestions that global warming and tornado ferocity/frequency might be linked by the rapid warming of the planet. For one thing, global climate change modeling does not generally divide the earth up into a fine enough matrix or grid to predict or simulate behavior in sufficient regional detail, such that tornado simulations can be reliably modeled: if they made their modeling grids using much finer resolution, simulations would take much longer to run and perhaps be  computationally overwhelming (though improvements in modeling are making this task more tractable). Climate modeling as been more focused on long-term climate changes, not the short-term episodes of thunder storms and tornadoes. The second factor that dissuades scientists from speculating about tornadoes is that they are always associated with thunderstorms and there seems to be no way to predict whether a single storm might begin to produce the circular cloud motions that can lead to a tornado, or a funnel cloud.  What appears to be exactly the same storm conditions may or may not give rise to tornadoes and, at the present time, there is no reliable way of predicting the outcome of any single severe thunderstorm event. It’s still the case that the best friend we have for our protection is the siren that goes off when tornado conditions are forming in our area.  However, it is well known that when hurricanes come onto land, they very often give rise to tornadoes; furthermore, the collision between cool air and warm moist air is also correlated with storm conditions ripe for spawning tornadoes.

Tornado in Texas

The violent and deadly tornadoes we have already experienced this year have been correlated with a lower than normal trajectory of the jet stream, bringing cool air down into the southern region of the country, combined with warm moist air coming up from the gulf. The collision of these two contrasting air masses is known to give rise to the kinds of violent thunderstorms that can generate tornadoes. A correlation between climate change and tornadoes seems sensible or at least plausible: global warming means that our planet is getting warmer because of a man-made increase in greenhouse gases. There is no longer any doubt about this.  A warmer atmosphere means that it can hold more moisture. The ability to hold more moisture means that areas that are dry and hot will become drier and hotter because the air can remove more moisture. Regions that routinely get moisture, will get more and areas such as the mountains of California and the Northwest, will face winter rain instead of snow, providing flooding during winter and water shortages during the summer. These kinds of events are already in play. Doesn’t it stand to reason that more moisture in the air is more likely to generate a higher frequency of thunderstorm conditions and hence more likely to generate tornadoes? It makes sense to me and Bill McKibben, environmentalist and founder of 350.org, has cleverly stated as much in a recent opinion article in the Washington Post, “A link between climate change and Joplin Tornadoes? Never!” This idea gets my vote–even if climate scientists do not feel prepared to advocate such a relationship.

Although one feels comfortable in making this kind of assertion, it will be virtually impossible to prove, particularly if you are still carrying around a bias against the concept of global climate change: in America too much political power is in the hands of global cranks. But with atmospheric carbon dioxide rapidly increasing, the only tool we have for our predictive powers is through modeling: we cannot run a planetary experiment that includes a proper control, though we can model the planet with and without elevated carbon dioxide.  Thus “proof” however you want to define it is not really possible, especially if you already view global climate change as a hoax, as some Congressional leaders do, or at least they say that to protect the interests of the oil and gas lobby. In my opinion, these naysayers are committing crimes against humanity. We must act on the imperfect science that is available and use it as a probabilistic guide to do what we can do to both adapt to our changing world and begin to mitigate greenhouse gases, bringing them back to levels compatible with the species (including us) that evolved under the planetary conditions that existed before the industrial revolution, or as close to it as we can get. It is far too late to get back to those levels tomorrow. We face at least fifty years of a warmer globe and more ferocious weather, including flooding, desertification, droughts, hurricanes and rising sea levels that can destroy cities and impact on virtually all species. Diseases that we consider tropical today, will affect many of us tomorrow. What climatologists are asking of us is that we get back to a carbon dioxide level of 350 ppm; right now we are at about 390 ppm, meaning we have to not only stop producing vast new quantities of atmospheric carbon, but we must also find ways to reduce it by removing some of it from the atmosphere, because the half-life of carbon dioxide is decades  long.  That means we have to act by using the kind of frontal lobe, long-term thinking that was recently outlawed by a failed resolution in the House of Representatives, who voted 240 to 184 defeating a bill that said “climate change is occurring, is caused largely by human activities, and poses significant risks for public health and welfare.”  Given the complete failure of our national government to act sensibly, adaptation to global climate change will have to begin at the local level, and slowly migrate up the political ladder. But we cannot do mitigation of atmospheric carbon dioxide without governments getting together, agreeing and enforcing meaningful emission reduction standards. We are already too late to avoid serious global climate change, including a significant increase in ocean levels by 2100. Many European countries are far ahead of us and the Netherlands has already started to implement a 200 year plan to protect against rising ocean waters, while continuing to produce sufficient food for consumption. In case you haven’t realized it yet, the increased cost we are paying for food is related to global climate change. This year, because of the enormous flooding along the Mississippi, there are places in the Midwest that will not be able to plant corn.  If we realize that focusing on planetary survival for the future of our children will also lead to a new and much more dynamic economy, we might conclude that we should get started on this project tomorrow. We should use this new challenge as a means to revitalize our economy and save the planet at the same time. Anyone out there ready to become a farmer?

RFM

 

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