Saturday, May 25, 2013

The Zero Sum Business Plan

“Whale Captured in the Harbor of Charleston”
In 1916 the Argent Lumber Company commenced work in the South Carolina Lowcountry. Beginning in 1904 several whaling and sealing operations commenced along the northern shore of South Georgia Island in the far South Atlantic Ocean.

Argent was one of a number of similar lumber companies that operated in South Carolina, North Carolina and Georgia beginning in the 1880′s. The various whaling operations began on South Georgia somewhat later, the first and most successful being the Argentine Fishing Company (Compañía Argentina de Pesca).
At its height, Argent Lumber was reputed to operate the largest, by volume of wood produced, lumber mill in the world at its headquarters in Hardeeville, SC. At the height of the whaling economy on South Georgia as many as 500 whales per year plus unnumbered elephant seals were killed and rendered into industrial and commercial products.

The connections between a lumber operation in South Carolina and whaling and sealing operations in South Georgia Island are 1) the time in which each flourished and died, 2) the business plan of each of these operations and 3) what happened after the operations closed. In addition to these connections, Argent and Argentina de Pesca had in common the manner in which they ceased operations. Each was going flat out, virtually full bore until the day they stopped. Though an argument can be made that Argent stopped operations due to a disastrous fire, in fact both operations stopped because the resources they were designed to exploit ceased to exist in amounts sufficient to support industrial operations.

At the beginning of both these resource exploitation businesses it was well known that business operations predicated upon the complete destruction of a commercially and/or industrially valuable resource would last only so long as that resource was around to be exploited. Further, it was assumed/hoped that as the exploitation process proceeded, engineers and industrial operators would devise ever more efficient means of exploiting that resource. These improvements in efficiency might well extend the life of the exploitation process but might also dramatically increase production, accelerating the destruction of the resource thus hastening the demise of the commercial viability of the operation.

On a small scale, this cancer like business plan has been replicated since the dawn of societies based on specialized work. The economy based upon the wealth generated by harvesting the natural stands of cedar timber in the Middle East collapsed once those stands were fully exploited. Similarly, the breadbasket of the Roman Empire, North Africa was farmed in such a way as to grow the Sahara Desert and destroy the viability of farming over wide swaths of the best farmland in the Empire. Likewise, massive American Bison herds, once found in numbers beyond counting, were hunted to near extinction.

In every case of these exploited resources, the resource was present in abundance because prior to the time of its exploitation, man did not possess the technology required to exploit it on an industrial scale. In every case, something changed that allowed a resource known to be valuable to become harvested with such efficiency it could now support a capital intensive industry and be competitive in world wide markets.

For instance, men had been hunting American Bison since they first encountered them. However, prior to the arrival of the repeating rifle, men had not possessed the ability to slaughter the Bison in their millions. Likewise, prior to advances in bed construction for narrow gauge railroads, man did not have the technology required to reach the vast stands of fully mature cypress trees hidden away in the river and tidal forests of the Southern United States. And, prior to advances in coal fired, later oil fired, ships’ engines, whalers could not efficiently operate in the roiling southern oceans.

The frightening aspect of the zero sum business plan is that it is efficient and that it always results in the same ending, depletion of the resource to the point of collapse. Of even more concern, the zero sum business plan is still the plan of virtually, PR claims notwithstanding, every resource based business and industry active in the world today. Certainly, the oil and gas industry operates on the assumption that full exploitation of the resource is the purpose of the enterprise. The oil and gas industry invests in, and celebrates, new extraction technologies that have ever increasing social costs. These technologies, such as fracking, allow for the economically “efficient” extraction of known but previously inaccessible hydrocarbon reserves. Such investments are made at the opportunity cost of investments in renewable energy production.

This is true even though the industry knows the only means of assuring the ongoing market efficiency of the new extraction technologies is direct and indirect government subsidy and support. The new technologies require: 1) a tax code that favors oil and gas extraction, refinement and distribution, 2) a public infrastructure (supplied and/or subsidized) supporting distribution of consumable hydrocarbon based energy products and 3) a regulatory environment designed to allow energy companies to avoid the economic impact of social costs related to the new extraction technologies.

All this ongoing public sector support is the only thing that gives large scale energy extraction, production and distribution companies their market viability versus other potential energy sources and products. It is an irrefutable fact that the ongoing support from government (the tax code, the regulatory code and the provision of and/or subsidy of transport infrastructure) is the only thing allowing the existing energy industry to compete against renewable energy sources in the market. If the existing energy companies would make the effort to skew the law and the operation of government toward a level playing field (as is being done in Denmark, Iceland, Brazil and other countries) our economy would move rapidly toward a renewable energy based economy.

Unfortunately, the economic and emotional allegiance of the energy/government complex is far too committed to the zero sum business model. This financial and emotional commitment prevents them from identifying and working through the issues required to migrate in a timely fashion to a sustainable business model. The failure to do so will result in serious environmental damage as well as myriad other, avoidable social costs resulting in extreme economic and political dislocation. This dislocation will, of course, eventually compel society to make the shift to renewable energy. However, in the absence of a major change in policy and direction, this shift will occur only after great damage and much unnecessary social, political and economic pain.

Syndicated from Like The Dew

Mike Copeland - I am sixty-two years old, married with three grown children. I have a B. A. from Birmingham Southern College and a Master's in City Planning from Georgia Tech. I have worked in SC State government for over a decade leaving as the Deputy Executive Director of the State Budget and Control Board, the state's administrative agency. I have owned the Fontaine Company since 1984 and am the managing member of viscerality.com.llc (www.viscerality.com) and technology management, marketing and consulting company. I am the author of several novels. The current project is titled Unforgivable Sin, a satire about religion and politics.


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