We are failing to invest in critical energy and agriculture research. We are letting our infrastructure fall apart. We are spending as if there is no tomorrow. We continue to drive as if there was no global warming. We are gorging ourselves despite warnings from our doctors. We focus on quarterly earnings at the expense of the long term health of our businesses . . . The pattern is clear. Like La Fontaine’s grasshopper, we are so focused on immediate rewards, that we are failing to prepare for our future.
The price to pay for such carelessness is too high for us to ignore. Hence, it becomes important to examine the root causes of such behavior, and ways to fix it. The image of my maternal grandmother comes up. Meme Marie was more like the ant in La Fontaine’s fable. She lived frugally, and made sure she had enough money saved up for her old days. She also drew much comfort from knowing that her nest egg and her farm would go to her children after she died. Her brother, on the other hand was a completely different story. Always broke, and borrowing from my grandmother, until the day when she got fed up, and told him no more. Americans are like my granduncle and La Fontaine’s grasshopper. Overindulged children with no sense of limits, and a dangerous sense of entitlement. This precarious lifestyle breeds anxiety about the very real possibility of sad endings.
The first step is to recognize the problem. Next, is to regain control of our lives and our future. We all secretly want it. We just need permission from the media, and from our leaders. Building, not wasting.
Marguerite, great post, although I wish I had had a Mimosa (spelling?) before reading it.
Just one thought for now, then I’ll leave another post regarding another aspect of the issue: For now, I’ll just mention that you are right (in my view) in mentioning the media as contributing to the problem. But, I don’t think we’ll get “permission” from the media to do much of anything. Instead, I think we’ll have to take, i.e., assume, permission, and then act, and the media can then decide whether, and to what degree, they will follow.
Cheers.
One Example of Grossly Insufficient Research on Alternative Energy Sources
In 2007, ExxonMobil’s sales and other operating revenues were $390.3 Billion, according to their published results.
(For reference, the ExxonMobil web site is here: http://www.exxonmobil.com/corporate/ . And ExxonMobil’s “2007 Summary Annual Report” is here: http://www.exxonmobil.com/corporate/files/news_pub_sar_2007.pdf )
In the same year, ExxonMobil’s total spending on R&D was $814 million, according to the report. This number includes the normal R&D an oil company would typically do (i.e., having to do with oil and gas), which is almost certainly the large majority of spending.
That said, this total R&D cost amounts to only 0.2 cents per dollar of sales (i.e., one fifth of one penny). Put another way, ExxonMobil spends much, much less than one penny on total R&D for every dollar of sales. In other words, when you give ExxonMobil one dollar, they spend about one fifth of one cent of that on R&D, most of which is spent on normal oil- and gas-oriented R&D. How’s that for priorities?
A project that ExxonMobil highlights when discussing its R&D aimed at carbon dioxide reductions and/or alternative forms of energy is Stanford University’s “Global Climate and Energy Project”. ExxonMobil has committed $100 million (total) over a ten-year period to the program. That’s an average of $10 million per year.
But, what does that say about priorities? For example, the last time an ExxonMobil CEO retired (Lee Raymond, in late 2005), his total package upon leaving the company was valued in the press at about $400 million. So, it seems, in this case anyhow, a single ExxonMobil leader left with $400 million, while the company touts the fact that it spends an average of $10 million a year on the Stanford project, which seems to be the project ExxonMobil highlights most prominently.
And all of this is only a very small fraction of what is a very small number in the first place, that is, 0.2 cents per revenue dollar.
And, this is only a small part of the story. My question is, why isn’t this story covered in The New York Times, for example, or in other mainstream media? Why can ExxonMobil continue to say whatever it wants, and leave whatever impression it wants, in the paper, in recurring full-page advertorials and related smaller advertorials in the paper, while the paper itself does not illuminate the much larger picture for the public?
> Jeff : it is most certainly true for a US oil company. But here in Europe, oil companies invest a lot in renewables and especially in solar.
OK, they may not invest as much as they should, but it is much more important than there in the US.
To exemplify my point of view, I’ll give you two names : Shell Solar, which is part of the Royal Dutch Shell. Shell Solar is a major player in solar PV.
Other one : Total, the fifth oil company in the world – French, yes ! – has at least two companies involved in solar : Tenesol and another one in joint venture with EDF, the French utility.
> Marguerite : nice post, as always !
Hope you both are enjoying your weekend !
This is an endemic problem to our Western culture. Not limited to the energy sector. The real culprit is a shift in values. We have discussed this before in other posts. How does one change values? One effective way is through external drivers of behavior. This is why the current rise in gas and food prices will be helpful in the long term, as it is forcing people to re-negotiate their living patterns. In the mean time, of course, the poorest are going to suffer.
oh yeah, the poorest are going to suffer… Climate change might create up to a billion refugees by mid century. I just published an article on that… (coincidence…)
And yes, we have to change all our values. From always more to much less as once stated a book I read. It is true, we’re gonna need to learn frugality after the excesses of all kinds.
And yes, rising oil prices are good as they force us to change our habits. People progressively use less their car and are turning to renewable energy sources to heat their houses. This is indeed a good thing.
Not really, Edouard. All that happens is that the poor, using very little fossil fuels, end up using none, the middle class uses slightly less, and the upper class continuing using as much as before.
Because we don’t have a free market, because fossil fuels are subsidised, they’re cheaper than renewables. So if you cannot afford heating oil you won’t be installing solar panels.
So no, rising fossil fuel prices are not good. Overall consumption doesn’t drop – rising price cuts out the poorest who never used much anyway. Remember that the rich-poor gap is also a fossil fuels gap. A Ghanan does not use as much oil as an American, a single mother on welfare does not use as much natural gas as Bill Gates.
The only good aspect is the potential for higher prices to prompt the public to demand government and corporate action. Unfortunately, there are two ways that can go: either government subsidies to keep the prices down, or investment in alternatives. It’s not certain that the sensible option will be chosen.
I don’t think it’s a problem that ExxonMobil isn’t doing much R&D: The company just isn’t good at it probably. Shareholders would let its management know if they would want more R&D from them. Instead, the shareholders who see the big picture probably invest the profits from ExxonMobil in renewable energy projects themselves.
Personally, I don’t like diversified concerns at all. I’d like to be able to choose if I invest in oil or renewables, and how much in each. Sometimes, expertise is so intertwined that it makes sense to put it under one management, but renewables are sufficiently different to warrant a whole new company.
ExxonMobil is just a mean, lean, profit-making machine. That’s not bad in combination with a smart reinvestment of the profits.
A considerable amount of R&D in the oil companies is going towards harder to recover hydrocarbons and coal -> liquid hydrocarbon processes. They still make profits and the very expensive infrastructure in the western world doesn’t change. It is possible with current price level of oil. Although the world may be near a peak in cheap oil, it isn’t lacking in hydrocarbon based fuels.
Tata in India is involved in a huge coal -> liquid hydrocarbon plant to make gas to run the cars they are making for the masses.
We can’t expect these guys to vastly change their way of doing business. We need to conserve and buy alternate fuels (clean ones that is) and we need to include the costs associated with carbon in fuel prices. But I’m not terribly optimistic on anything happening in the near future.
Dear Friends,
There are many lessons in these threads, but this thread appears to point out so dramatically one of the most pernicious human-driven challenges confronting the family of humanity: the deleterious effects of filthy lucre that is consolidated in the hands of a tiny group of people at the tiptop of the human community’s global economy. The way the economy of humanity is organized and managed, endless economic growth, endless wealth accumulation, conspicuous resource consumption and endless hoarding of limited resources are presented as the only way to play “the only game in town.” That the ‘only game in town’ richly services the few, unfortunately sacrifices the “many too many” and is soon to become patently unsustainable is shrouded in silence.
Of course, everyone who looks out at the world with fresh eyes as La Marguerite does, sees this immediately and refuses to allow personal, selfish interests and the approbation of others to keep them from breaking the silence that engulfs most people in the human world today.
The lesson here to which I draw attention is the way wealth and the power it purchases serve so pervasively to corrupt the thought, judgement and will of the economic powerbrokers and their bought-and-paid-for politicians, and leave the rest of us searching, despite the silence, for acknowledgement of the need to find a sustainable path to a good enough future. The well being of our children and a chance at life for coming generation are being put at risk by too many leaders who adamantly call for evermore over-consumption, overproduction and overpopulation on the tiny planet God blesses us to inhabit and not overwhelm, I suppose.
Sincerely,
Steve
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
So, where does this discussion leave us?
I say a need for wise leadership, and policies, and empowered citizens to support those leaders and their policies. Also, a gathering of the best minds in the economics field to put together a new ‘Smart Economic Framework’.
Many helpful posts here.
Thanks, Edouard, for the comments about France and some of the international oil companies other than ExxonMobil.
Also, (back to ExxonMobil for a second), unless such a company views itself as an “energy” company rather than more narrowly as an “oil” company, it will eventually go the way of the Dodo Bird, much like some of the horse-and-buggy companies did when it began to appear that autos would replace horse-and-buggies. And, although it’s true that many of the areas of ExxonMobil’s R&D “group” would probably not be well-suited to doing wind-energy R&D, for example, or solar R&D, or etc., such a company is large enough to establish entirely new R&D areas, invest in joint R&D, build new R&D teams, and so forth. Indeed, the Rockefeller family recently criticized ExxonMobil for not doing enough in the way of alternative energy R&D and further development.
Cheers for now.
“Also, (back to ExxonMobil for a second), unless such a company views itself as an “energy” company rather than more narrowly as an “oil” company, it will eventually go the way of the Dodo Bird”
There’s nothing wrong with that. They’ll just downsize gradually, buying up all their shares. Investors know the oil will “run out” at some time. It’s not a problem to have a “temporary” company for some goal, like oil extraction. It happens often at a smaller scale. Companies are set up just to do one project, after which they’re liquidated.
I don’t believe in root causes in the strict sense, because in systems each “cause” is in turn caused by something else. The only thing we control is ourselves, and even that free will is an illusion, in my world view at least.
But all the things you say are true.
In general, I think you could say that there is one good way, and infinite bad ways to live. The luck we have is that the good way also feels the nicest, once you get the hang of it.
This future mindset will be constantly debated, refined, and experimented with, and will spread like a virus. I don’t know if you now about memetics, but I think the “green, frugal, active and happy”-mindset is like a meme, but more powerful than any of the old, and – best of all – not conflicting with the boundaries of the strongest part of ideological memes (especially Christianity). Nobody is attached to consumerism, mindlessness and passivity THAT much.
I’m sharing some preliminary outcomes of my research here. Note that I’m not trying to describe utopia and distopia, but the future and the past. I’m trying to be objective. The reason that the future looks like utopia is that we want utopia. Quite simple. Of course, the future and the past can exist at the same time in one’s head and in one’s community. The future will gradually take over.
Words of the future:
abundant, accountable, active, aligned, attuned, authentic, autonomous, beautiful, blue, committed, complex, connected, conscious, creative, curious, distributed, diverse, effective, empowered, engaged, ethical, evidence-based, fair, fertile, flexible, free, frugal, good, green, happy, healthy, honest, interfaith, international, local, meaningful, merit-based, mindful, moneyless, natural, nonprofit, norm-based, normal, nutritious, open, p2p, paperless, peaceful, playful, resilient, responsible, secure, shared, slow, social, soft, transparent, vegetarian, voluntary, wise.
Words of the past:
censored, collective, coercive, controlled, corporate, credible, destructive, efficient, evil, exclusive, financial, forced, greedy, hierarchical, ideological, legal, mobile, obese, poor, powerful, private, productive, profitable, reckless, rigid, scarce, selfish, serious, strategic, stressed, traded, violent, wasteful.
This future – in my view – is imminent under the condition of material abundance in the strict sense, e.g. capacity to produce enough food, shelter for all humans on earth. I believe we have that at the moment. “People of the past” could destroy this condition, but I think that chance is small. The future is already quite well developed in certain areas of the world, not the least in and around you.
For the sake of completeness, I have to quote Coldplay here:
“Maybe you know when you’ve seen it
Maybe if you say it you’ll mean it
And when you find it you’ll keep it
In a permanent state
A permanent state.”
Meryn writes that if the shareholders want the company to invest in R&D, they’ll let the board know.
However, this misunderstands something essential about modern capitalism: that many shareholders are shareholders either momentarily (buying shares at $5.45 then selling them a week later at $5.50) or else indirectly (they invest money in a bank, earning interest, and the bank invests that money in shares). So there’s not that feedback from shareholders to managers.
The average shareholder has no say in the company’s management because they’re not interested, they’re not there long enough to care. It’s like if you’re walking down the street and see a large crack in the pavement, you don’t ring up the local council and get them to fix it, you just step over it and walk on – you’re only passing by, so you don’t care.
If that crack were outside your front door and you had to pass it at least twice every day, then you’d care. Likewise, if you own shares in a company for some years, then you care about the company’s future.
Secondly, people own shares to make money. So if the company pays large dividends, they’re happy. Historically dividends were a share of the profits after a subtraction for reinvestment. So if a sheet metal factor made $1 million profit this year, they might take $200,000 out to buy a new machine in the hopes of better quality work and thus larger profits next year, and the remaining $800,000 is shared among the investors, if you own 10% you get $80,000, and so on.
But nowadays dividends don’t relate to profits. A dividend may be smaller than an equal share of the profits, it may be larger – you may even be paid a dividend if the company made a loss that year.
If the company you invest in pays you dividends as a share of the profits, you have an incentive to encourage them to be well-managed and profitable; if the dividend bears little or no relationship to profits, who cares?
Shareholding is thus not as Meryn is describing, a process of investing in a company and sharing in its profits and its management, but is simply gambling.
It would be trivial to change this. We could simply have regulations that dividends (and bonuses) may not exceed profits, and that all shares once bought must be owned for at least one year, or else be subject to a tax on trade of (say) 10%. This would ensure that shareholders are interested in the good management of the company they invest in – including that company’s future.
While it would be trivial in regulation terms, it would be a very fundamental change in the way we do things. It would, in fact, be capitalism – those who own the means of production profit from it, and those who invest money in it own it.
But people seem to prefer gambling… :)
Looking at this old but still true article, it probably explains why Meryn, a European, had this view of shareholders. It’s different in the US and Australia.
“Shareholding is […] simply gambling.”
Oh yes and that’s why there are highly trained financial professionals earning six figure incomes? They’re trained to be gambling? We wouldn’t even need all those journalists and analysts. Come on.
You suppose that each company should have a future. This is simply not true. Shareholders don’t care about companies, they care about money. The companies they invest in are a vehicle to earn money, nothing more nothing less.
The non-diversified operations of ExxonMobil represent a very conscious strategy, explicitly different from most other oil (energy?) companies. If ExxonMobil could greatly improve it’s stock performance by diversifying, they would do so, or else face shareholder activism.
Personally, I wouldn’t want ExxonMobil management anywhere near renewables. They have no green DNA. I can imagine many other shareholders feel the same, and use the money saved by Exxon to diversify their portfolio by themselves.
A good excersise for all of you: Imagine you were a multi-billionaire with a long-term view. You have the option of either making ExxonMobil diversify more, or directly investing in renewable energy companies. What would you do?
Keep in mind that if you invest directly yourself, you can choose the exact mix of solar/wind/geothermal/etc. Otherwise, ExxonMobil’s management (specialized in oil!) chooses for you.
Hi Meryn,
The point I’ve been trying to make is not just about R&D: It also has to do with broader actions, public communication, and etc., and it doesn’t assume “either/or”. In other words, the choice isn’t that either ExxonMobil does more R&D OR government does more R&D.
When someone BIG needs to change, or should change, if all the action happens around them and without them, and if they don’t change, they’ll just resist, fight back, and eventually die or cause great damage. (This is an illustration, not meant to apply exactly to the energy situation or to any particular company.) Put another way, if you somehow have a big angry bull cornered somewhere, you’d be wise to give it a positive and productive way out, i.e., a way that it too can join a positive future. It’s usually not good to trap a bull, or bully, if you can’t give it a positive way out that doesn’t cause even more damage.
ExxonMobil should join the future rather than use its huge muscle and assets, perpetually, to fight the future and continue delaying it. This doesn’t mean, of course, that people should “count on” ExxonMobil to lead the way or find the largest solutions. But, they SHOULD be moving in positive directions, and they SHOULDN’T be delaying positive public policy changes that would make a positive difference.
It’s not just that ExxonMobil does very little R&D related to alternative energy (relatively speaking): You should see their public communications, e.g., their advertorials in The New York Times. In my view, they use their muscle in ways that aren’t helpful (in many cases).
In isolation, I’d agree with your point that I’d rather spend $100, my way, on great R&D, rather than give it to ExxonMobil to spend on R&D. But, that’s not really the choice I’m talking about.
Cheers.
Meryn, thanks for bringing up the ‘meme’ concept. I have been thinking about that a lot lately. I love your positive word salad . . .