What’s at Stake In Congress In 2009

President Obama’s election has created huge possibilities for change. However, for the biggest changes to occur you need Congress to act first. By far the two biggest issues before Congress are Climate Change and Health Care.

In both cases the present trajectory of policy is nothing short of disaster. Health care costs if left unchecked will cripple our economy and government for the coming century. The outcomes of Climate Change will be even worse, causing natural disasters, massive health impacts, and crippling developing nation economic growth. Both scenarios have been subject to a multitude of analysis from scientists, economists, climatologists, and many others. Less time has been spent analyzing what’s at stake for those industries and individuals currently advocating against change.

What’s driving record breaking lobbying efforts on these issues? In short they are afraid of nothing less then the death of their entire industries. Before I unpack that claim, that me review what a industry is in this political context and what death could mean. An industry is an idea about how to make money. It presumes certain behaviors and expected outcomes. For example it’s understood there will be good and bad years or that some years you might run a deficit, but it’s also expected that your profits and revenue will generally increase over the long term. That’s what a healthy industry is all about, the promise of future profits and growth.

An industry is a lot of people. It’s management, stock holders, employees, debt holders, business partners and contractors, and consumers. For a company like General Motors that’s millions of people. Some companies like Bear Stearns just stop existing, but it’s more common to see them re-organize, change their name, or otherwise continue existing in some new form. Enron changed it’s name to Enron Recovery Corporation, and actually sued Enron’s business associates for cooperating with the former management’s fraudulent practices. Think about that, 2004 Enron was legally adverse to corporations based on their cooperation with 2000-2002 Enron. GM will continue to exist, but the premise of their existence has been altered and many stakeholders were wiped out.

In both the health care and climate change debates there are a wide range possible outcomes, almost of them all of bad for these industries. In health care the least harmful scenario is having to deal with a bunch of costly rules and regulations, the worst includes watching a public option come in and undermine their market share. The cap and trade bill is less likely to pass then health care reform, but there is a broad understanding that the eventually the Obama administration is going to enact laws that hurt dirty energy providers. It’s just a matter of how much and when. A cap and trade bill would dictate the range of market share and total output dirty energy producers could expect to control in future years. The further you go in the future the smaller their contribution to powering America becomes. In the case of coal you’d probably see a complete lack of new profits fairly quickly, as building new coal plants would become a nonstarter. In both cases it’s the difference between industries growing and declining in size and the difference is trillions of dollars.

In both cases you have the possible creation of alternative political coalitions and feedback loops leading to even greater change. If the public option ends up serving 12 million people and 10 million of them like it and don’t want it go away suddenly there is a new political force pressuring politicians to preserve and expand it. Similarly if solar and wind double or triple in size then so does their potential political muscle. If they stop making new coal plants, then the political power of coal mines would drop. As fuel efficiency increases our dependence on oil would drop. No country has ever dropped government run health care despite it’s alleged evils, because of these same type of policy feedbacks.

But none of these outcomes is guaranteed. Which is why industry money spent lobbying this year will shatter all records.

-Chris

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2 comments so far

  1. Jeremy on

    I’d add one point to this analysis. Concerning dirty energy companies and climate change legislation, I think their fear of being put out of business is misguided to a great extent. Some antiquated institutions, like coal power plants themselves, may go the way of the Dodo, which is a welcome change to anyone other than the shareholders, executives and some employees of those companies. But oil companies and the like are actually quite well positioned to remain the industrial leaders in a clean energy economy…if they choose to do so.

    It’s no secret that large fossil fuel companies have massive amounts of reserve capital. They use it for R&D, exploration and more. If they put a steadily increasing share of that reserve into building windmills, solar panels etc, that investment will absolutely dwarf that of startup companies and/or existing foreign alternative energy producers. In doing so, it will ensure that a vast portion of market share remains in the hands of these very same corporations.

    If, on the other hand, they fail to make such responsible investments, they deserve every bit of financial ruin that is coming to them.

  2. Chris on

    Well certainly oil companies, much more then coal, are positioned to be a part of the economy for decades. Also big oil companies have the financial resources and market knowledge to enter into cleaner areas of the energy sector. But digging holes in the ground and cutting shady deals in the developing world is what they do best. They’d be playing catch up trying to go ‘clean’.

    One problem is that a lot of green jobs will go to small businesses and independent contractors that don’t the lobbying presence or long term perspective of bigger corporate interests.
    -Chris


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