Candidates Show Energy … Are They Showing Us an Energy Plan?

Both John McCain and Barack Obama have a lot of energy. And they like to talk about energy policy. But what I’d like to see is some more energy spent on energy policy: Not just hot air but real, focused attention on long range solutions and not short term fixes.

Talk about scoring easy points. Most Americans care about energy issues and they are desperately seeking leadership. We recently polled 1000 adults, some our customers and some not, to learn what they thought about the candidates’ energy platforms. Results: Not pretty.

Here is a sample of what we found:

• 80 percent of Americans feel the government is responsible for resolving energy issues;
• 83 percent feel America does not have a clear energy policy;
• Only 57 percent believe that either candidate has an effective energy policy;

Only 26 percent are confident that either candidate can help fix our nation’s energy problems.

Imagine that: Americans are split on almost everything, but they are united in this: There is a vacuum of leadership on energy.

Neither party has a monopoly on wisdom. The survey shows that only 29 percent of Democrats are confident in either of the candidates’ energy policies, while 24 percent of Republicans have a similar view. Only 20 percent of those identified as Independents have confidence in the candidates’ energy plans.

In the meantime, 84 percent of Republicans, 83 percent of Democrats and 83 percent of Independents said that America had no clear energy policy.

Is government the answer? Or should we leave it to private enterprise. Most Americans believe it is the government’s responsibility to help Americans deal with the energy issues: 88 percent of Democrats agree that the government needs to play a role, compared to 73 percent of Republicans and 78 percent of Independents.

I tend to agree that government must play a role. After all, government exists for a reason. To protect the defenseless, to advance the public welfare, to make investments that are greater than any mortal can make alone (with the exception of Warren Buffett and Bill Gates, perhaps). If left to the marketplace, the wealthiest communities would have lots of electricity and the poorest would be heating their homes with coal stoves. Free enterprise is great in theory but needs to be tempered sometimes by regulation.

We’ve heard lots of talk about solutions: Everything from “drill, baby, drill” to pump up our tires. Politicians seem to think that the way to show leadership is to promise lower energy prices the way they promise lower taxes. The survey underscores that Americans are not fooled by easy fixes. They know that we live in a world of energy shortage and that price volatility will not go away overnight.

Let’s treat our nation’s energy addiction with the same seriousness as we treat substance abuse. Some solutions may be more painful than others. At the risk of rubbing somebody the wrong way, here are a few ideas:

Provide tax credits for on- and off-shore natural gas exploration. We are undermining our national security interests and bankrupting our economy by sending billions of dollars abroad for crude oil and natural gas exploration, production and distribution. Let’s do everything we can to keep the funds at home.

• Tax carbon consumption or adopt cap and trade. Cheap prices, not high prices, are the cause of most of our energy woes.
• Extend and expand tax credits and deductions for energy efficiency: spray foam insulation would reduce many homeowners’ consumption by up to 30% within a year. Solar panels are almost cost-effective and consumers need to start to install them now.
• Simplify permitting for new transmissions lines and for wind and solar development. NIMBY (not–in-my-backyard) concerns will always slow down change but the public interest demands that local, partisan concerns be preempted by the greater good.
• Expedite nuclear power plant licensing and development. France generates over 75% of its electricity from nuclear power and has escaped many of the risks posed by Russian natural gas supply and OPEC crude oil pricing.
• Permit offshore exploration and drilling, subject to prudent steps to protect our fragile ecosystems like coastal beaches.
• Permit drilling in the tiny area of the Arctic Wildlife Refuge and grant rights-of-way for transportation to the Lower 48.
• Provide investment tax credits and tax deferrals for new energy technologies. I do not think government try to choose which technologies will work; most new breakthroughs come out of basement and garage laboratories, not government-sponsored programs. But new business ventures should not be strangled in the crib by burdensome regulation and tax policy.
• Fund an international institute of applied energy science and technology. Among other things, the institute could help ensure that new technologies receive patent protection but also that licensing is prudent and cost-effective. We are at risk because of our dependence upon oil. Europe is at risk because of its dependence upon Russian natural gas. The world’s climate is at risk because of nitrous oxide emissions. We need to accelerate the dissemination of scientific research and technological developments.
  

My prescription is sure to offend a lot of people. But it will also provide widespread benefits. We need to compromise and give a little or we will never get the policy we need. It may be the very definition of a good deal: equally good and equally bad for everybody.

The Corner of Wall Street and Main Street

The air waves and newspapers are filled with stories of Wall Street and Main Street. The economy certainly demands our close attention. But there is another, potentially more important story that you probably will not see or hear. It is a story about the corner where Wall and Main Streets meet, where American ingenuity was met by American risk capital and changed our lives forever.

One hundred years ago today, the first Model T rolled off the assembly line of the Ford Motor Company’s factory on Piquette Avenue in Detroit. The “Tin Lizzie” was a four cylinder, 20 horse-power vehicle. Its low cost of $825 made driving affordable for average families. The car’s simple, standardized design made rapid manufacture feasible: “Customers can have whatever color they choose,” Henry Ford said, “as long as it’s black.” By 1924 ten million Model T’s had been shipped. By 1927, when production stopped, fifteen million had been sold.

Like so many success stories, it took Henry Ford some fifteen years before the Model T became an overnight sensation. It is worth pausing to reflect on the primary ingredients of Ford’s success and what they teach us about modern business. Given my interest in our young retail energy industry, it is ironic that Ford came out of the utility business. His first big job was as an engineer for Detroit Edison, the Michigan utility. Indeed, he met Thomas Edison when he was tinkering in his garage with one of his first experimental cars. “Young man, you have the right idea,” Edison said to him. “Keep right at it.”

Ford first saw a coal-fired steam engine-driven tractor when he was 12. At 16 he joined the utility and worked with turbines generating electricity. At 28 he sketched his first internal combustion engine on the back of a sheet of music and at 30 he started his first engine in the kitchen sink. Working in his garage he assembled his first prototype and at 2 a.m. on June 4, 1896, he emerged onto the streets of Detroit driving his first car.

Ford did not invent the gasoline powered engine or create the first car. Karl Benz in Germany and the Dureyea brothers in the United States took those prizes. For years Ford fought off a lawsuit claiming infringement of a patent for a gasoline engine granted to a Rochester lawyer in 1879. He finally won that lawsuit in 1911 when the Court of Appeals in New York observed that the lawyer’s patent only extended to his specific design. The decision unshackled Ford, and all inventors since: Innovation is a continuous process of modification and improvement. It would be unfair if we let the caveman who invented the stone wheel get a piece of every tire manufactured since!

No, what Ford did was take the basic ingredients – engine, wheels, axels, transmission – and assemble them in an inexpensive, efficient manner. He did not create mass production or the assembly line. But there, too, he took the manufacturing techniques of others and improved on them. One of his favorite sayings is an article of faith at MXenergy: “Everything can always be done better than it is being done,” he said. He also gave credit to others for his inspiration. He attributed one of his greatest achievements – the mobile assembling line, in which workers stood in place as the parts came to them -- to watching a carcass being “disassembled” cut by juicy cut at the Chicago Stockyards. He pulled some scrap metal out of the wreckage of a French race car and discovered vanadium, a tough but light-weight steel alloy that he would incorporate in his Tin Lizzie.

He also was willing to break the mold. When he saw turnover in his ranks – in 1913 he needed to hire and train 963 workers for every 100 he retained – he raised wages from $2.38 for a nine-hour day to $5 for an eight hour day. Other employers were stunned but Ford maintained that a healthy workforce was good business. Indeed, now his employees could even afford the cars they were manufacturing! And when other auto makers were looking to fatten their profits Ford lowered the price of his car, to as low as $99 in 1914. Lo and behold, sales increased and profits improved. The very conception of the Model T was revolutionary, putting the automobile within the reach of the common man and not only an exclusive perquisite of the wealthy.

It was not always smooth sailing. Ford quit his job at the Edison Illuminating Company, the predecessor of today’s Detroit Edison. But his first venture as the head of the Detroit Automobile Company did not fare well. The company went into receivership (it later emerged as the Cadillac Motor Car Company) and Ford was out of a job. Fortunately Ford also had an interest in car racing and the avocation helped bring him his first important seed capital. After beating an Ohio car manufacturer in a ten-mile race in 1901, he attracted the attention of a wealthy investor who backed him to start the company that would bear his name. Fortunately for Ford his backer decided to start another company, lost his shirt, and was forced to sell his shares to Ford and others. The economic panic of 1907 helped Ford refocus his energies on the mass market; the recession made him realize that making cars for the wealthy few was a ticket to the poorhouse.

Henry Ford was not a Saint, don’t get me wrong. He was imperious and controlling. When his workers came up with a new design intended to hold off competition from new market entrants like Chrysler, Ford allegedly broke the windshield and stomped on the hood. It took him years to give up on his Model T. His politics were nasty, inclined to anti-Semitic rants about international conspiracies.

But Ford’s legacy remains the Model T: As creative as its standardized design; as tough as the vanadium of its hull; as commanding as the backfiring of its engine. Without the Model T we might all be like the French sans-culottes, standing in the dusty streets watching the aristocracy pass in their shiny Cadillacs. When you turn the key this evening think of Henry Ford cranking up the Tin Lizzie on Piquette Avenue in Detroit and stop for a moment to think about the corner of Wall Street and Main Street.