General Rent Seeker

The CEO of GE recently committed the company to “define the cutting edge in cleaner power and environmental technology” through increased R&D spending. He also pledged significantly reduced greenhouse gas emissions by 2012 and doubling the revenue earned by cleaner technologies to $20 billion by 2010.

A commitment to improved environmental stewardship is commendable but hardly dramatic. Many companies have already raised the bar for their environmental standards. Some are using their actions to shape their image with the public.

The motivation for GE’s initiative is not completely clear. However, for a company of GE’s stature it is fair to ask, why didn’t you do this earlier and do it with shareholders instead of politicians and the media? The setting and timing justify a little skepticism. Since we live in a world where images drive perceptions, it is prudent to apply the Reagan maxim of “trust but verify”.

The GE announcement went beyond just a stronger commitment to environmental improvement. By raising the specter of climate change, GE’s CEO called for legislation with clear milestones for greenhouse gas reductions, a cap and trade program (which means mandated limits on energy use to reduce emissions) and a government program to fund technologies. It is ironic that GE’s founder and first great innovator, Thomas Edison, did not need government regulations and subsidies to create a market for the light bulb.

Emissions come from using energy to run our factories, operate commercial facilities, heat our homes and drive our cars. Since GE makes products that can reduce emissions, he is calling for actions that drive up the cost of energy and that would provide taxpayer dollars for GE to sell products and systems that cannot compete in the marketplace. If some new GE technologies are not worthy of being brought to market with shareholder money, they certainly are not worthy of using taxpayer money.

Not long after its “Ecomagination” announcement, an executive from GE Energy was quoted liberally in an article on a coal gasification technology that can capture carbon. He acknowledged that this “core technology” is more expensive than current technology and would add 70% to the price of power from conventional plants. This may help to explain the call for government actions that would make current technologies more expensive and for subsidies to make technologies that are not cost competitive today appear to be cost-effective. Whatever happened to the principle of the level playing field?

GE has been a successful company because of a commitment to excellence and an ability to invest in products that make money and meet consumer needs in the marketplace. Even some non-economic technologies like wind power — which is part of its energy product line — may make sense as a substitute for advertising dollars. But the call for government action to help create an environment for marketing these technologies crosses the line because it seeks to achieve profits through the Code of Federal Regulations and taxpayer subsidies.

Being praised by environmental advocates for a bold initiative and collaborating with them is reminiscent of the alliance between Baptists and bootleggers to suppress the sale of liquor on Sundays. The alliance was successful in preventing citizens from buying liquor legally on Sundays, so they turned to bootleggers.

In the case of GE’s collaboration with environmental advocates, a limitation on energy use driving up the cost of energy would make their high cost, not-ready-for-prime-time products more competitive and in the process they get praised for enlightenment. The call for government action to help create a market demonstrates that GE’s CEO knows that a real market does not yet exist.

GE may find that the price of environmental good is more than they have bargained for because of increasing demands for more and more actions that are not economic nor in its shareholders interests.

The search for accommodation to avoid “bad PR” and shareholder resolutions is never ending. A deal with these groups just sets the floor for the next round of negotiations. In the words of Winston Churchill, “an appeaser is one who feeds an alligator hoping that it will eat him last.” GE might be last but it still could be eaten!

In the long run, successful companies stand on principle, do the right thing and let the chips fall where they may. That is what shareholders should expect. In GE’s case, it would be easier to accept its Ecomagination commitment if it did not stand to gain financially from the public policies that it is advocating.

The late historian Daniel Boorstin once observed that we have reached a state where reality is tested against images, not vice versa. We are less interested in whether something is true than whether it is convenient that it be believed. In a world where anything can be true, making things seem true is rewarded. That is why image making through environmental marketing can be successful. In the end, actions matter and GE will look good by doing good and standing on its record.

A famous GE slogan once was “we bring good things to life.” Let’s hope GE continues to do that, without insisting on a government hand out to do so.

 

Copyright 2005 Tech Central Station http://www.techcentralstation.com/052605C.html

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