Third Party & Independents Archives

Industrial-Strength Stupidity In America

Now that the speculation on the cause of the blackouts seems to be abating in the mainstream media, I wanted to bring up a topic of concern regarding what has become an epidemic of short-term thinking in America. The cause of this lies with ignorant stockholders who seek quick profits, and the CEOs and boards that are willing to sacrifice the long-term viability of a company to them.

The cause of the blackouts is clear, there was inadequate investing in infrastructure and monitoring. The effect of the blackout was a loss of billions of dollars and trust in a matter of days. Months of cumulative overtime had to be paid, PR campaigns that will undoubtedly be run, and possible lawsuits. The shock waves of red ink is already leaving many in the energy industry reeling. So why didn’t anyone foresee this?

Obviously, no one is clairvoyant and can see the future, but such a lapse in infrastructure planning and spending is unforgivable. All of America wants to know who should get pointed at and scowled at with anger. The answer is first most CEOs, then boards of directors, and lastly... the common stockholder. The CEOs because their mantra of profit has perverted the ideology of capitalism, and morphed into profit right now. Of course now we have to look to the why of that, and the blame lays squarely with the board of directors, who appoint CEOs ever few years and give them short-term incentives such as stock options (which are convertible almost immediately), grants of unrestricted stock, and cash bonuses. They want to maximize profits as soon as possible and they want the CEO to work extra hard in order to reach that goal.

For a publicly traded company (and many private as well), the ultimate blame lies with those who invest in the company, those who are willing to trade a solid long-term investment (e.g. 15 years at 10% per annum), for a short term bubble investment (e.g. 2 years at 30% per annum). It's feasible for a company to make 30% and still be quite viable in the long term, but it's a rare industry with little overhead, very little reinvestment, or incredibly large profit margins. The short-term ideology sees no reason for spending money on capital improvements or new hirelings, especially if it means that his return on investment is going to go down. This is the painful epidemic that is sweeping America and is causing our demise.

There is no longer much thought about the long-term, everything must be instant gratification. Even if a company falters and approaches bankruptcy, this mind set causes CEOs and investors to demand at the very least that stock prices go up or reverse in quick order rather than allowing a company to reorganize and discover a new line of profitability. Instead, as in the case of the Airline industry after 9/11, executives will lay off thousands of employees, boost their profitability, and get a pat on the back and a bonus. This happened across many industries, and now the result is a 6% (reported) unemployment rate and millions of Americans jaded about their employment prospects.

Americans have been told that the answer is to work harder, to tighten their belts, and in a few years things will get better. At the same time we have been consoled in word by these industry and government voices, in deed they have been contemptuously working behind our backs in order to fill their own pockets as quickly as possible. The government has cut taxes that mostly effect those who are less likely to need it or spend more, at the same time, voting for their own pay raises, and cutting benefits to social programs, and active and retired military. CEOs have laid off hundreds of thousands of workers and urged those remaining to work even harder and be more productive.

Yet, companies are no more viable than three years ago, they delay capital expenditures in an effort to add to profits and keep stock prices up. With the 9/11 bailouts of the airline industry, this mentality swung into high gear, as bail-out money flowed into company coffers, yet short sighted security fixes caused travelers to flee. There was no viable long-term plan to fix security, merely a shift from privatization to government control and regulation. This mentality is about to play itself out in the energy industry as well. Everyone was working hard at passing responsibility to someone else instead of directly fixing and addressing the problems.

The government will pass laws requiring energy companies to invest in infrastructure, and will probably be forced to bail out companies that cannot cope with such an atmosphere. The estimate is in the tens of billions of dollars, and that's just for the energy infrastructure. Other vital areas of civilization are crumbling as well: water, sewage, and police protection. Each is focused on short-term goals, and not on expansion of services or population. In the case with police protection, recent years have shown a marked shift towards revenue generation through traffic enforcement, with many departments pulling away from responding to burglar alarms, and increasing wait times for critical aid, to ignoring public safety completely. During the recent blackout, one traffic enforcement bureaucrat has the presence of mind to keep writing tickets rather than heed a plea from citizens who had to direct traffic through a darkened intersection.

Is the problem getting any better? Are there any officials who will pay attention to the outcomes of such imprudent behavior? Recent years have shown, that unless we change our behavior, it is only going to get worse, and the short sighted, instant gratification culture that America is wallowing in will only progress. Until it is too late to fix the problems, and things really begin falling apart. Things are already nearing the edge, and many are hidden from public view by ignorance and apathy: Two overloaded water arteries leading to NY (built in the early 1900s) cannot be repaired until a third one is finished (sometime in 2020); Electrical grids that were largely built in the 1970s are overloaded and new ones cannot be built at all due to the BANANA (Build Absolutely Nothing Anywhere Near Anything) mind set; Vehicular gridlock is expected to continue to pose problems as mass transit proposals across the country are stalled by costs. These are all real problems that are on the table, and the answer from the industry has been to point finger and lay blame instead of planning and fixing and building.

No, things are not getting better, and the current ignorance pervading America will lead to it's downfall. It's something terrorism could never have dreamt of accomplishing: a crumbling faith in the future.

Posted by Stephen VanDyke at August 28, 2003 3:26 PM