Judging from our latest CEO Confidence Index, energy woes worry corporate leaders more than any recent disaster that has hit the U.S. economy (page 10).
So it’s pretty remarkable that the country is not even engaging in a credible debate about what to do. Within the corporate sector, there is little or no discussion among electricity generators, electricity distributors, oil and natural gas companies, and manufacturers of cars and other engines that consume energy. Much like the players in the health care miasma, they don’t talk to each other, much less share common ground.
Guiding principles for the coming debate should include these:
Energy policy is now more than just energy policy. We are expending so much wealth on imported energy that, even though some petrodollars are being recycled back into the U.S., we are endangering our long-term economic well-being. We also are pouring billions of dollars into the hands of governments that don’t necessarily share American interests, such as Saudi Arabia, endangering our own security.
Government can’t dictate a solution, any more than it could demand that food prices or auto prices decline in real terms or that the costs of computing and communications should plummet. A president might establish a vison or a goal, as in the Manhattan Project. But the government’s most important goal, ultimately, is to let market forces prevail. Who knows where the next entrepreneur is going to emerge with a way to make cars run on solar power? Government should concentrate on removing regulatory restraints.
Doing that is going to require breaking the iron grip that environmentalists have on the political system. Yes, we need to conserve more and develop alternate energy sources. Yes, we need more efficient vehicles. But at the same time, we need to mine more coal, drill for more oil including in Alaska, build more refineries (which we haven’t done in decades) and build more nuclear power plants. France, Germany, Japan and China all rely to some extent on nuclear power. They’re making it work.
In short, there are sensible trade-offs to be made to protect as much of our environment as we can while also addressing urgent economic and security considerations. By some estimates, the U.S. could be reasonably self-sufficient in energy if only we had the national will to take the right steps.
As Americans shiver in their homes this winter, the time could be right to begin the first meaningful debate in decades about the right ways, and the wrong ways, of addressing our energy dilemma.
Word of Advice to the UAW
It’s a pivotal moment for U.S. manufacturing. Delphi’s bankruptcy decision and General Motors’ tentative deal with the United Auto Workers to reduce health care costs appear to be opening shots in the Big Three’s efforts to radically alter their cost structures. They have no choice because as J.T. Battenberg of Delphi has argued, no business can survive if it must pay workers $130,000 a year, even if they’re not working.
So if the UAW membership has any lingering doubts, our advice is to look at what happened to the steel industry. If you fight the auto industry’s management so forcefully that they cannot reduce costs, that’s the death knell for what’s left of the Big Three. Just pack it all up and head out to your cabins on the lake. There will be no American-owned auto industry for the next generation.
It is far better to accept the short-term pain of lower wages and less generous benefits and redefine your relationship with management. If you engage with management and fight together for the future of the industry, it’s possible that Ford and GM could reverse their long slides and gain back market share. If they did, they would build more factories or retool old ones. Over the long term, jobs would be created, not destroyed. That is the best-and only-way forward.