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Navigating the Government-Industry Nexus

RP Siegel | Tuesday September 4th, 2012 | 1 Comment

You may have heard of the the energy-water nexus, a framework that recognizes the complex and elaborate interdependence between these two crucial resources.
This systems-thinking approach is vitally important as world population continues to grow and the demand for both of these resources are predicted to reach astronomical levels.

But what about the government-industry nexus? These two great forces dominate our society and interact in complex ways, sometimes as partners, other times as adversaries. Their relationship seems to be the most divisive issue that no one is talking about in American politics. Take the “you didn’t build it,” controversy. That is a great example of the kind of misunderstanding that goes on around this issue.

President Obama was simply pointing out that every entrepreneur relies on the kind of infrastructure services (e.g. roads, bridges, police protection, etc.) that government provides, to build his business on. The fact that these services are often taken for granted, illustrates the value and effectiveness they bring to every day life. These are the kind of things that people only notice when they are broken. Yes, the president would have done himself a big favor if he had simply added the “alone” at the end of his statement. That would have been a less contentious statement of his point.

Conservatives tend to focus on the individual, emphasizing the work of the entrepreneur, who, of course, worked hard to achieve whatever success he has attained. But it isn’t one or the other, it’s both. Try building an Apple Computer, for example, in a country  like Somalia that has few roads, highways, clean water, electrical infrastructure, and security, even if it does have no taxes. Taxes and regulations represent one side of the coin, government services and support is the other. All of us, at one time or another, have found ourselves on either of this coin. No one likes writing checks on April 15th, but we are very happy to see a fireman or police officer arrive on the scene when needed.

Mr. Romney’s acceptance speech said little about the services that government can offer. Instead, he talked about helping small business by, “reducing taxes on business, not raising them. It means simplifying and modernizing the regulations that hurt small business the most.” But all those small businesses rely on government services, and those services have to paid for somehow. And regulations are necessary to temper the greedy impulses upon which capitalism is based.

Businesses, on the other hand provides government with tax revenue, employment (which generates more tax revenue), technological innovation, outsourced services, and campaign contributions.

A great example of government and industry working well together was in the auto industry bailout. The Obama administration provided $34 billion to struggling car makers GM and Chrysler in exchange for a number of concessions including:

  • Consolidation of operations
  • Fast-tracking development of fuel efficient vehicle
  • Promises not to fight against new CAFÉ standards
  • UAW concessions on retiree health funds and unemployment benefits
  • CEOs agreement to work for a salary of one dollar
  • Selling their corporate jets

David Kiley, Auto editor at AOL, described the impact of the bailout in the following statement:

“In all, the Center for Automotive Research (CAR) in Ann Arbor, Mich., reckons the government’s bailouts of the U.S. auto industry spared more than 1.14 million jobs in 2009, and prevented ‘additional personal income losses’ of nearly $97 billion in 2009 and 2010. Another 314,400 jobs were saved in 2010. The research organization based its conclusions on the potential impact of auto-industry collapse for jobs at U.S. automakers and suppliers, and ripple effects on the economy at large.”

Think how much higher the deficit would be without all that personal income. I wonder how those autoworkers felt about writing out their income tax checks in 2009 and 2010.

Here you see both sides of the coin being masterfully employed, with dramatic results, not only for the economy, but for the environment, as well. Last week, the Obama administration announced raising new fuel economy standards to an unheard of 54.5 mpg corporate average by the year 2025. This will reduce our consumption by 12 billion barrels of oil, savings Americans $1.7 trillion in fuel costs.

Mr. Romney has already told us, he would have approached the same problem by:

a) Letting Detroit go bankrupt, and

b) Opening up more and more sensitive areas for drilling

What’s interesting here is that the President took the opportunity to extract these promises from the companies, to everyone’s benefit, when he had the upper hand. Had the companies not been in the position they were in, where they desperately needed the bailout money, they would have fought tooth and nail against the new CAFE standards, utilizing their army of lobbyists to persuade members of Congress to vote against it. Such is the reality of American politics today. The President has relatively little power against big corporations (without the cooperation of Congress) except in those circumstances where they find themselves over a barrel.

Sadly, the same pattern was not followed with respect to the banks. In fairness, the President was newly inaugurated and given the panic about a worldwide economic collapse, he listened to the advice of Wall Street insiders, much to the detriment of everyone else.  There was also the question of large campaign contributions to both parties. If he had followed the pattern that he later, successfully used with the auto industry, he would have given them less than 100% of their apparent shortfalls. A bailout of 75%-80% would have kept them from failing, and yet let them feel the sting like everyone else did. Bank CEO’s should have been paid $1 a year in salary. But most important of all, the banks needed to be broken up. Having these banks that are “too big to fail” doing business every day, is like having a live nuclear bomb sitting in the middle of NY City, where it could just go off any time, destroying millions of lives in the process. The opportunity to strike a grand bargain with the banks that would have taken the interests of the general population into account was there, but it was missed. I hate to think of when the opportunity will present itself again. Maybe a second term president, with no need for future campaign contributions will try to tackle this. Unfortunately, too many members of Congress will still be depending on those contributions.

[Image credit: Corey Olson: Flickr Creative Commons]

RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining format. Now available on Kindle.

Follow RP Siegel on Twitter.


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  • Verne_J_Hostan

    The underlying point is ‘consent of the governed’. Our Darwanistic advantage is exploiting our ability to improve extrinsic factors to our favour. We’re tool-makers – a capability that only gets traction when we cooperate – specialization engenders efficiency and effectiveness. Zero percent of our attention goes to fighting wild beasts and wrestling down dinner – so we are free to expand our expertise in higher order endeavours. That’s what Barack was driving at. Going it alone doesn’t work. It’s an empirical truth that seems lost on far too many of our leaders. We need to agree what should be provided commonly and then work on doing that efficiently and cost-effectively. Our current level of expenditures for patchwork offerings is far beyond what it could be for much better services. We don’t need to gnaw at each other – we need to do what we’re good at.