Profitability and Progress: Capitalism’s Achilles Heel

“Blowing the Roof off the Twenty-first Century: Media, Politics, and the Struggle for Post-Capitalist Democracy,” the latest book by Robert W. McChesney, the Gutsgell Endowed Professor in the Department of Communication at the University of Illinois, is a must read for those of us concerned about our ability to survive the crises of economics and democracy now plaguing the United States. More than most writers, in my view, McChesney grasps the true nature of the economic mechanisms that constrain us. None of us, as yet, appreciates the full gravity of the distributional effects of those mechanisms, and the full impact of the growing inequality problem: That is a gap in our knowledge I am working on and endeavoring to fill. McChesney does, however, display an accurate perception of the history of inequality growth, and a sensational appreciation of the overriding importance of economic factors and ideas in shaping our democracy, our culture, and our world.

McChesney describes his perspective as “radical,” but his ideas are reality-based, and radical only in the sense that they contradict conventional wisdom. As I have been arguing, the conventional wisdom about neoclassical, mainstream economics is contrived and mostly wrong, and designed to serve the interests of the rich and powerful. To my way of thinking, what is truly radical is the increasing tendency of conventional wisdom to ignore the facts of the real world. 

McChesney’s message is certainly straight-forward: “In the coming decades we are going to see a society the likes of which has never existed, and can scarcely be imagined. I argue in this book that if the new society is going to be one in which we want to live, it will require fundamental change in the political economy.” (p. 15) McChesney defines himself as a “socialist,” and he explains what he means by that as follows:

I prefer the term post-capitalist democracy to the term socialism, though for me they point essentially the same direction. I have considered myself a socialist since I was eighteen or nineteen years old, and I still do. The term has always signified to me the creation of genuine political democracy, its extension into the economic realm, and having the wealth created by society directed to social needs. (pp. 21-22) 

In short, I propose post-capitalist democracy as a big tent to cover everyone who wants democracy and leaves out only those who put their blind faith in the wealthy, giant corporations, and the profit motive regardless of the evidence or social costs. There are a lot more people in group A than group B, fortunately. (p. 23)

The Profit Motive

Mainstream, neoclassical economics, as I have explained in previous posts, is a paradigm designed to explain how society can maximize its profits. We rarely stop and really think through how much the pursuit of profits determines the allocation of society’s resources and the balance between the satisfaction of common needs and private desires. We are becoming increasingly aware of the circumstances in which the profit motive follows perverse incentives, contrary to the broader public interest, in such areas as private law enforcement, privatized detention and prison systems, privatized health care and health insurance, private control of public communications systems, and privatized secondary education. Ownership confers privilege, and there is nothing radical about recognizing that the monopolization of the essential economic and social aspects of our existence leads to inequality and economic injustice.

There is major evidence of the conflict between public and private agendas in news reports every day. I chose today to write this short post on the distortions created by the “free” market because of several news reports in the last two days, and in particular two reports in today’s paper which I will get to shortly, that illustrate the key difference between a “capitalist” approach to solving the problems of civilization and the “socialist” approach.

Reviewing this post on Wednesday morning, I feel compelled to add this paragraph: As the world’s habitable environment becomes increasingly saturated with the growing human population, resource scarcity and environmental impacts are, in my view, the two most serious issues civilization faces. There is an urgent need to reduce our reliance on fossil fuels as the impacts of extracting marginal supplies increase, and the global warming caused by burning fossil fuels is now approaching the point of no return. Planning for an eventual obsolescence of internal combustion engines and the use of fossil fuels to generate electricity are high priorities. In the interest of maintaining their high level of profitability, however, giant energy companies keep us moving in the wrong direction.  

Energy, Pollution, and Climate Change

There is no mystery about the enormity of the cost of environmental externalities caused by economic activities: oil spills in the Gulf of Mexico and off the coast of Alaska; polluted water supplies in Montana and West Virginia; the long history of air pollution caused by the use of fossil fuels to generate electricity, and so on. It costs a great deal to prevent accidents and minimize pollution, and when producers must pay these costs, it eats into their profits. They cannot always recover such costs through higher prices, even for price-inelastic services like electricity. Huge corporations like BP fight hard against potential liabilities, settle adverse claims, then gloss over the adverse impacts of their activities with public relations campaigns and TV advertising that avers a staunch commitment to the environment. What we do not typically see from energy companies, however, are policies designed to minimize the initial damage.

Oil producers are not backing off on the hell-bent removal of oil from the tar sands of North Dakota and Canada, and there will no doubt be such a high environmental cost that, some day soon, a serious question will be raised about whether the corporate profits involved come even close to offsetting the enormous environmental costs, and whether corporate profits in, say, solar or wind power might be far more consistent with the public interest. There have been months of controversy over the Keystone Pipeline project, intended to move vast quantities of tar sands oil from Alberta right across America’s breadbasket states, and the critical mid-western aquifers. Alleged societal benefits boil down to the assertion that the economy will benefit from temporary construction jobs.

The alternative is moving this oil by rail. Just yesterday we were alerted to extremely disturbing predictions from the U.S. Department of Transportation, predictions made last July and only now being revealed:

According to federal authorities’ own predictions, potentially deadly oil train accidents are likely to be commonplace in the United States over the next two decades, with derailments expected to occur an average of 10 times a year, costing billions of dollars in damage, and putting a large number of lives at risk. The grim projection was revealed exclusively by the Associated Press, which cites a previously unreported analysis by the Department of Transportation from last July. The disclosure comes in the wake of two explosive crude-by-rail disasters in the U.S. and Canada this month alone, including wrecks and explosions in West Virginia and Ontario. (“Get Used to It: DOT Predicts Oil Train Derailments Will Be Commonplace Over Next Two Decades,” by Sarah Lazare, Common Dreams, February 23, 2015, here; see also “More Oil Train Crashes Predicted, AP, Albany Times Union, February 22, 2015, here.)

The avoidance of potentially 200 oil train derailments and the incalculable total cost in lives and environmental damage they would entail, it should go without saying, requires society to abandon the project entirely and throw its resources into “green” energy resource development, especially  since not removing the tar sands and other costly shale oil from the ground will avoid the impact that burning it would have on the pace of global warming.

I do not believe the full costs of global warming can, as yet, be appreciated; but the information available so far is alarming. Reports warn of irreversible damage to ecosystems, including (almost unbelievably) the end of life in the oceans in less than a half century. (See “Death of the Oceans – Horizon – Discovery Science History Nature” (full documentary), YouTube, September 5, 2014, here“The Disaster We’ve Wrought on the World’s Oceans May Be Irrevocable,” by Alex Renton, Newsweek, July 2, 2014, here). Yet it is climate change deniers like Oklahoma’s Senator Inhofe who control our public policy debates and determinations:

Inhofe claimed in 2003 that global warming might help humanity. It’s also important to question whether global warming is even a problem for human existence. Thus far no one has seriously demonstrated any scientific proof that increased global temperatures would lead to the catastrophes predicted by alarmists. In fact, it appears that just the opposite is true: that increases in global temperatures may have a beneficial effect on how we live our lives.”  (“Congratulations, Voters. You Just Made This Climate Denier the Most Powerful Senator on the Environment,” by Rebecca Leber, New Republic, November 5, 2014, here.)

This is anything but an objective view, and in the scientific community it is an extreme minority view. For example, as reported by Skeptical Science (Copyright 2015, by John Cook, here):

  • That humans are causing global warming is the position of the Academies of Science from 80 countries plus many scientific organizations that study climate science. More specifically, around 95% of active climate researchers actively publishing climate papers endorse the consensus position;
  • Surveys of the peer-reviewed scientific literature and the opinions of experts consistently show a 97–98% consensus that humans are causing global warming. 

Just a few days ago, moreover, the New York Times reported that one of the minority scientists most cited by global warming deniers, Wei-Hock Soon of the Harvard-Smithson-ian Center for Astrophysics, “has accepted more than $1.2 million in money from the fossil-fuel industry over the last decade while failing to disclose that conflict of interest in most of his scientific papers.” (“Deeper Ties to Corporate Cash for Doubtful Climate Researcher,” by Justin Gillis and John Schwartz, The New York Times, February 21, 2015here.)

The profit motive, clearly, lacks the heart, soul, and conscience of humanity. It is capable of driving people into the most myopic frames of mind, and presiding over the demise of, yes, even the planet.

Which reminds me: How much longer can democracy survive under the horrendous Citizens United holding that corporations are people, too, entitled to the First Amendment’s protection of free speech, and that spending money is equivalent to speech? As McChesney aptly put it:

When you compare the resources of progressives to the resources of the largest corporations and their allies, you feel like you are lining up for the Indianapolis 500 on a tricycle. (McChesney, supra, p. 26)

I would add that this metaphor may even be conservative, for the ratio of the top speed of a tricycle to the top speed of an Indy car may be considerably less than the ratio of the trillions of dollars of excess profits available to corporations and their principals for influencing elections to the savings available to progressives; and “progressives” in this instance should be interpreted as the broad category of people interested in saving the planet.

The American Energy Innovation Council

This brings me to today’s news. As we know, billionaires are people too, and many have a social consciousness that their for-profit corporations lack. According to an article in today’s New York Times, there is a small group of very wealthy business leaders who appear to meet that definition of “progressive”:

The government is spending far too little money on energy research, putting at risk the long-term goals of reducing carbon emissions and alleviating energy poverty, some of the country’s top business leaders found in a new report.

The American Energy Innovation Council, a group of six executives that includes the Microsoft co-founder Bill Gates and the General Electric chief Jeffrey R. Immelt, urged Congress and the White House to make expanded energy research a strategic national priority.

The leaders pointed out that the United States had fallen behind a slew of other countries in the percentage of economic output being spent on energy research, among them China, Japan, France and South Korea. Their report urged leaders of both political parties to start increasing funds to ultimately triple today’s level of research spending, about $5 billion a year. (“Bill Gates and Other Business Leaders Urge U.S. to Increase Energy Research,” by Justin Gillis, The New York Times, February 23, 2015, here).

Stressing the importance of new technologies to America’s “economic growth, competitiveness, and environment,” the Introduction to this report (February 2015, here) argues:

Since 2010, support for government energy research, development, and demonstration has languished, with appropriations remaining depressed when adjusted for inflation. In essence, we have been eating the seed corn of decades past. This matters because, even amid a surge in domestic production, the country’s energy challenges are more critical today than ever: though oil and gas prices have declined recently, affordable energy is out of reach for many households and businesses; oil and gas development requires renewed focus on sustainability; the electric grid is at risk from physical and cyber attacks and faces greater pressures to integrate growing renewable and distributed sources, even as demand growth is flat; global energy market volatility makes diversification from existing sources much harder; and climate change and international competition for energy resources become more threatening with each passing day. The provision of safe, clean, affordable, and sustainable energy is one of the most important missions for the United States. Fortunately, the nation’s opportunities are vast—if we invest in them.    

These are certainly worthy objectives, but unfortunately, climate change is not nearly high enough on the list of cited concerns. Some initial observations seem mandatory: These are leaders whose companies are not in the energy sector, and their appeal for progress is not to the energy sector itself, but to the government. There is no reason to assume that they are not thinking along the lines of the government support for corporations that has made them and the CEOs of major energy companies very wealthy. Does Bill Gates, possibly the wealthiest man in the world, look to the American taxpayers (who will soon be borrowing nearly $1 trillion per year to balance the federal budget) to fund these programs? Here is what they say:

The council’s fundamental finding is this: the scale of federal energy R&D investment is still just one-third of what is necessary. Federal funding remains the only viable avenue of support for energy technology research and large-scale demonstration projects.

But there is no hint in this Introduction of proposals for tax increases for the most wealthy Americans, such as themselves, or for corporations. The national debt has reached $18 trillion, and these wealthy leaders are content, apparently, to keep on doing what our government has been doing for decades, namely subsidizing corporations and enabling their empires to flourish.

And here is an equally important, if not more important, point. On p. 12 of the report we find this quotation from Bill Gates:

To solve the world’s energy and climate challenges we need hundreds of new ideas and hundreds of companies working on them. That is not going to happen without the U.S. government’s continued tradition of leadership in R&D.  Everyone has a role to play — from the private sector, to philanthropy, to the academy — but we will not be able to find the type of energy miracle we need without investing in the programs that support that innovation.  

Leaving philanthropy aside, his vision seems clear: Companies must have the incentive to work on and implement the “new ideas.” In short, the private sector must see the potential for profit, or they cannot be expected to invest in solving any of the cited concerns. This group is not interested in “socialism” in the sense we have been discussing it here, as a system concerned with the interests of society, but only in “socializing” the continuing advance of capitalism. The question is, what conviction would these business moguls need that the future of the planet is seriously threatened by global warming before they would recommend even the slightest modification to the economic system that enabled their enormous success?

And I feel compelled to make this additional Wednesday morning addition: What will it take to persuade these gentlemen that the threat of deep depression is real, and that growing economic inequality threatens their own empires? How do they expect companies like Microsoft and General Electric to survive after the push for profits, especially energy profits, has siphoned so much wealth to the top that our bankrupt federal government will be forced to default on the national debt? How do they justify continuing to support the robust growth of energy company profits, and the continuing avoidance of taxation by large corporations? At this point, their narrow focus on research and development suggests that they harbor the desperate hope that the miracle of innovation will suffice, all by itself, to sustain progress and prosperity and to protect their interests.   

Implementing “Green” Energy

President Obama has expressed a firm commitment to doing everything possible to reduce greenhouse gas emission and slow the pace of global warming. The U.S. and China reached a historic accord last November on pollution limits:

The landmark agreement, jointly announced here by President Obama and President Xi Jinping, includes new targets for carbon emissions reductions by the United States and a first-ever commitment by China to stop its emissions from growing by 2030. Administration officials said the agreement, which was worked out quietly between the United States and China over nine months and included a letter from Mr. Obama to Mr. Xi proposing a joint approach, could galvanize efforts to negotiate a new global climate agreement by 2015.

A climate deal between China and the United States, the world’s No. 1 and No. 2 carbon polluters, is viewed as essential to concluding a new global accord. Unless Beijing and Washington can resolve their differences, climate experts say, few other countries will agree to mandatory cuts in emissions, and any meaningful worldwide pact will be likely to founder. (“U.S. and China Reach Climate Accord After Months of Talks,” by Mark Landler, The New York Times, November 11, 2014, here.)

Of course, in order to reduce carbon emissions, there must be an increase in conservation and green energy in both countries. Here in the U.S., this will entail more than just lip service to the idea from the energy producers. But it also requires commitments from state governments to subsidize green energy that is not yet fully competitive with fossil-fuel sources on electric grids, and from the general population to adopt conservation measures and alternative energy sources. Also in today’s news was a report warning that changes in New York State’s government policies could threaten the growth of already commercial green power:

Advocates are warning Gov. Andrew Cuomo that two sudden changes in policy could undermine state efforts to promote clean solar energy and energy efficiency. Changes made in December by the state Public Service Commission and New York State Energy Research and Development Authority, cut how some large solar farms are paid for power and imposed income guidelines for property owners to qualify for state-subsidized clean energy loans. The changes prompted 30 alternative energy companies and advocates from across the state to write to the governor last week.

The changes “are undermining the growing clean energy market at a critical time by reducing incentives far too rapidly … and leave most large-scale solar projects upstate not financially viable,” the letter stated. “These actions regarding large-scale solar are undermining your signature policy of assistance to boost the upstate economy by hampering the development of well-paying green jobs.” (“Curb in Aid Hurts Solar,” by Brian Nearing, Albany Times Union, February 23, 2015, here.)

The specific issues here involve NYSERDA’s recently announced cutback on its five-year-old Green Jobs-Green New York subsidized loan program that helps property owners pay for alternative energy like solar panels, or energy efficiency retrofit programs. “Starting this year, NYSERDA will impose income guidelines on residential property owners, and bar apartments, small businesses, and not-for-profit groups from qualifying.” This means that potential investors in solar alternatives will have to borrow at market interest rates. Simply put, profitability to lenders will take precedence over the social objective of reducing carbon emissions.

The issue involving the PSC, my former agency, involves premiums paid by utilities for solar energy:

In the Capital Region, the owners of Rensselaer-based Monolith Solar said changes imposed by the PSC in December to end a premium that utilities pay for power produced by certain types of solar farms could threaten hundreds of its projects. The change would affect off-site solar farms for universities, school districts and municipalities, which can make money selling power back into the grid in a practice called remote net metering.

Melissa Kemp, of Renovus Energy, an alternative energy installation firm from Ithaca, said that change could cost a solar farm a third of its annual revenue. The PSC is scheduled to decide Thursday on whether to revisit its decision. Groups urging the PSC to reverse course include three major solar industry associations, Cornell and Binghamton universities, and Wal-Mart.

As income and wealth inequality grows, it becomes increasingly difficult for state governments and their agencies to accomplish green energy goals. Thus, it’s not just a question of increasing R&D efforts and finding new technologies, as maintained by the American Energy Innovation Council.

Conclusions

An economic system owing its allegiance to the profit motive, i.e., a “capitalist” system, is loaded with perverse incentives, and leads to badly allocated resources. It leads as well to denial of the facts of reality, when necessary to promote opportunities for profit. The result has been to prevent timely action to prevent global warming and its dire consequences, including mass extinctions, and the possibility of the death of ocean life.    

This post has focused on the energy sector. There is enough here, I suggest, to verify McChesney’s argument that “if the new society is going to be one in which we want to live, it will require fundamental change in the political economy.” We will have to step back from our all-out commitment to an economic philosophy of promoting personal gain and profit maximization and seriously consider other means of providing for the common good.

Bill Gates and Jeffrey Immelt must live here on this planet with the rest of us, and are just as reliant on interdependent economic systems as everybody else.  The sooner they realize that, the better.

News flash: Today President Obama vetoed the Keystone Pipeline! I can’t wait to read about it tomorrow.

JMH – 2/24/2015 (ed. 2/25/2015)

Postscript (added 2/27): Yesterday at its regularly scheduled session, the New York Public Service Commission (PSC) responded favorably to the complaint of Monolith Solar, and other solar energy producers that eliminating the premium utilities pay them for their excess power — for resale to electricity consumers — would threaten “the future of hundreds of large-scale projects across the state.” (“PSC lifts solar shadow,” by Larry Rulson, Albany Times Union, 2/26/2015, here)  This was the lead story in today’s paper.

The PSC is on the horns of a dilemma. I know very little about Audrey Zibelman, the PSC’s new Chairman, who arrived a decade after my retirement from the agency: She appears to be an effective leader, sensitive to the conflict between reducing the amount of fossil fuel generation on the electric grid and protecting consumers from exorbitant rates (the traditional role of the PSC) by keeping the price of electricity as low as possible. As today’s article explains, eliminating the 30% price premium paid by utilities for solar power will be delayed, under yesterday’s decision, to avoid harming the budding solar industry.   

In the long haul, it seems to me, New York should consider using public authorities such as the New York Power Authority (NYPA) and Long Island Power Authority (LIPA) to manage the development and distribution of solar and wind power. NYPA has provided clean, inexpensive hydroelectric power for decades (here). Before I retired, a big part of my job was presiding over proceedings for the certification of new power plants, at the time mostly natural gas-fueled plants, with a minimum of adverse environmental consequences. Perhaps the effectiveness of that approach has waned.   

If we are going to respond effectively to the urgent need to reduce carbon emissions,  and avoid the drastically increased environmental harm discussed above, it might well be best (maybe even essential) to return to public provision of green power, rather than leaving our future up to the arbitrariness of profitability. Note that Gates and Immelt have already concluded that public investment in R&D is the most effective avenue for progress. If the private sector cannot get the job done on its own, perhaps public ownership of a significant share of this segment of the means of production is the answer. The use of public authorities has been a time-honored tradition in the United States, always considered an acceptable form of “socialism.”  

 

   

        

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