Monthly Archives: December 2016

Neither bad nor good. Just human. Goodbye 2016


There’s a tendency in some of the reviews of 2016 which are finding their way online to praise the year as a great one.  It’s the usual form of contrariness to the oft stated maxim that 2016 has been such a terrible year, and it comes from the right of the political spectrum of course.  Because it has been a good year for “right-wingers”, no doubt about it.

But of course 2016 is neither a terrible nor a great year.  It is a year the memory of which is entirely dependent on the individual living it.  Citizens of Aleppo, or Syria generally (other than its wretched president) haven’t had a great year.  People who have suffered family or close friend bereavements haven’t had a great year.  On the other hand, weddings and births will have continued to bring pleasure to many too.  In a more general sense, citizens of western democracies are likely to have had a better year than the citizens of poor authoritarian countries such as Russia.

The purpose of a brief blog review therefore can’t possibly be to provide some sort of neat summary of the year.  What it can do is see what the year has left us politically, and whether it provides any signs of what is to come.  Which is a bad statement to make of itself since if it has done anything I guess 2016 has at least thrown up the frailty of political punditry, which has mostly been wrong even from those who may have ultimately been delighted at what has happened.

2016 hasn’t quite been the triumph of democracy that some of its enthusiastic backers are now proclaiming.  Yes, the Brexit referendum encouraged lots of people to vote – a good thing – although it provided its victors with a narrow enough margin – a mere 4% of the turn-out – to maintain the divisions that the campaign itself exposed.  In America, the scene of that other great democratic cataclysm, the ‘populist’ victor has turned out to be not quite so popular after all, winning his presidential election with a popular vote that trailed nearly 3 million or so behind the loser.  So democracy isn’t a winner here.

A certain loser could be liberalism.  Liberal nostrums have received a bashing, no doubt about it.  Liberals have been damned as establishmentarian and elitist as the newly resurgent right marauds its way across the landscape.  But even here the rhetoric disguises the reality.  There can be few more elitist people than the billionaire victor of the American presidential election, living in his gold trimmed penthouse in New York.  As if to perpetuate his elitism, his cabinet is packed with more billionaires than any cabinet in American history, his defence policy will be overseen by generals and his foreign policy by the highly elitist – and undeniably well connected – chief executive of an oil company.

In Britain, the apparently non-elitist Leave campaign was spear-headed by public schoolboys (an Old Etonian and an Old Alleynian at the two campaigns’ respective heads) and received the support of the majority of the establishment print media, edited by wealthy mandarins working for putocratic foreign-based owners for the most part.  The populist leader of the right in France, meanwhile, inherited her party from her father.  Elitism is very much in vogue, and it is on the “populist” right as much as anywhere.

Truth took a knocking though.  The Brexit campaigners paraded promises that they forsook on the day after their victory, one of their key campaigners disparaged “experts”, while the American president-elect continues to deal in fantasy even after his victory.  Facts and rational argument took back seats to fiery words, the more outrageous the better.  The reward for the fantasists has been great indeed, with one of the most prominent even gaining a $250,000 book deal from a once reputable publisher.

Internationally, Russia’s leader has played a poor hand with shrewdness, bloody-mindedness and considerable success.  The murderous thug who leads a regime of torture in Syria and has presided over a villainous civil war looks as if he has won through.  The president of Turkey has turned himself into a virtual dictator with little consequence as yet, firming up his odd foreign alliance with that other clever dictator in Russia.  The current president of America, a beacon of liberalism, leaves office with the possibility of his legacy being burned by his successor, while the Chancellor of Germany, who welcomed immigrants to her country so fulsomely, may yet be undone by the next election.

Lost of celebrities have died, but then there are lots more celebrities around.  Celebrity culture took off  around the 1960s, so it may not be surprising that its older personalities are starting to fall away.  Its younger personalities have never been noted for lifestyles that promote longer living either.  2017 is unlikely to see much of a change from that.  Meanwhile, as we mourn celebrities, unsung heroes will also pass away.  Dr Donald Henderson, who eradicated smallpox, died in 2016, receiving a public encomium finally via twitter at the end of the year.

In sum, the year has been messy and provocative.  As such, it stands little different from either its predecessor or, in all likelihood, its successor.  The means of the mess may change, but the broad thrust of flawed humanity making its ever populous way in a world it can’t mould or understand remains similar.

Happy 2017.

Good tidings of great joy, which shall be to ALL people

Christmas as the divine reminder of the value of equality:

Luke 2:
[8] And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. [9] And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid.
[10] And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people.
[11] For unto you is born this day in the city of David a Saviour, which is Christ the Lord.
[12] And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger.
[13] And suddenly there was with the angel a multitude of the heavenly host praising God, and saying,
[14] Glory to God in the highest, and on earth peace, good will toward men.

So, when the Lord finally decides to make the big PR announcement, She doesn’t pitch it, like a Lexus or Mercedes commercial, to the people who can afford a big celebratory binge. She doesn’t announce it first to the three wise men who had been sent by rich kings able to give some of the most expensive gifts in the world. She has Her angels go and talk to the people on the lowest rung of the socio-economic ladder, some poor guys working outside at night.

This foundation story means that Christianity, no matter how much it would be corrupted (see, for example, Kevin M. Kruse, One Nation Under God: How Corporate America Invented Christian America, Basic Books, 2015) would be a religion that affirmed the value of all people, not just the leaders and elites. In fact, Christianity was first the religion of slaves in the Roman Empire. Two millennia later, when the world finally began to seriously attempt to eliminate slavery entirely, it was radical Christians who led the Abolitionist movements around the world.

Revenge of the electric car

This documentary on the resurgence of the electric car is fascinating and extremely well done. The highlight of this doc is that it demonstrates the sort of person it takes to push a new idea into production.  It follows Robert Lutz at GM as he green-lights the Volt, Carlos Ghosn at Nissan as he bets significant company resources on the Leaf, and of course, Musk at Tesla.  The videographers are there at critical times such as when GM declares bankruptcy and Musk is down to his last $3 million (which is essentially zero in the car business.) It is must watching for anyone remotely interested in the complexities facing anyone interested in electrifying the transportation fleet. Spoiler alert—it will be a BIG job. And yes, it will only succeed if real Producers win the day.  In Detroit, Producers are called "car guys" and the Predators are called "bean counters." Lutz should know—he wrote the book.

It also covers the fallout of the financial meltdown of 2007-8—a pointed reminder that no matter how clever, car companies are in the economic hands of people who do nothing but manipulate money. Whether these manipulators are are honest or fraudulent is pretty much irrelevant because when they screw up, they can take some brilliant projects down with them.

A direct link to the Youtube page. This thing runs 90 minutes but yes, I have watched the whole thing.

Elon Musk rediscovers vertical integration

The 1980s introduced the era of "greenmail" and other forms of financial piracy.  It wasn't just the resulting destruction of essential national wealth that was so disturbing, it was the bizarre rationalizations for why this destruction did not matter. Those of us who argued for example, the economic value of tight manufacturing integration, were hopelessly overmatched. We were up against the simple argument that it was better to move production from somewhere it cost $60 / hour to a location where labor could be had for $10 a day. Against that reality, we could only offer intangibles. Unfortunately, these "intangibles" included the values and practices that that allowed our great-grandparents to build in extremely hostile environments (like Minnesota—it was -22°F / -30°C yesterday morning) while turning them into warm and comfortable habitats with lighting, abundant food, transportation systems, educational institutes, medicine, and the other requirements of life.

The pioneers who ventured out onto this bleak landscape were not exactly building something from nothing. Around here, they started out with excellent soils, abundant water supplies, trees that yielded superb lumber, and a large supply of rocks—most especially limestone. Even so, there were no instructions on how to turn these resources into the farms and villages of settled life. The tools needed to build and the skills to operate them were especially scarce.  And yet, the resulting artifacts of civilization were figured out—in many cases with unusual sophistication. All of this happened so recently that the evidence that some mighty builders had roamed this land can still be found by anyone remotely interested.  My childhood and youth was spent marveling at these accomplishments—my favorite question seemed to be, "Now how do you suppose they built that?"

What fascinated me most was the realization that almost everything I could see and touch had been created by people who had no "qualifications" to build them. There were no schools or books that taught aeronautical engineering to the Wright brothers or Glenn Curtiss, no instructions to guide Ford into making automobiles or Firestone into tires. These folks were self-taught simply because there were no other teachers available. The greatest inventions of human history were brought to us by unqualified amateurs. Because this was so nearly miraculous, the practices and work habits that allowed the utterly "unqualified" to pull off feats that most observes still consider magic became extremely important. These were the factors of production that the financial pirates so happily destroyed in their get-rich-quick schemes of the 1980s.

The act of producing electric cars in a world designed to produce internal-combustion vehicles powered by liquid fossil fuels is similar to the acts of pioneering and invention practiced by the those early industrial giants. The most charming proof of this now comes from Elon Musk who has recently discovered the same virtues of vertical integration that Henry Ford so massively demonstrated when he built his famous River Rouge factory in Dearborn Michigan. It turns out that many of the old ideas still work.

Vertical Integration: How Tesla’s Elon Musk Employs A Long-Lost Approach From A Bygone Era In American Business

December 17th, 2016 by Matt Pressman
Originally published by Evannex

Of all places, on the other side of the world, the South China Morning Post* teaches us a valuable lesson about American business. The subject: Tesla Motors. To start, they provide a quick history lesson: “By the turn of the 20th century, Corporate America was characterised by… household names such as Standard Oil, DuPont, IBM, Ford, and General Electrics [which] were all vertically integrated. They regularly bought out upstream suppliers and acquired downstream distributors. Their activities were broad, touching all stages of production – from R&D to manufacturing and assembly… But by the 1980s, the system had been dismantled.”

Why? In short: “global outsourcing. In the pursuit of higher return on investment, CEOs were dreaming about eliminating capital expenditure. Taking advantage of cheap labour in Asia, companies exited manufacturing en-masse in America… Gone were the days when Henry Ford still ran his rubber plantation, timberland, coal and iron ore mines to feed raw materials to his Michigan factory. Today, almost no one makes their components. Automakers rely on a worldwide array of foreign suppliers.”

Nowadays, automakers succumb to suppliers “across a great span of geographic regions while making sure thousands of moving parts perform to perfection.” Ali Javidan, former head of vehicle prototyping and R&D at Tesla explains, “If Daimler wants to change the way a gauge looks, it has to contact a supplier half a world away and then wait for a series of approvals. It would take them a year to change the way the ‘P’ on the instrument panel looks.”

In contrast, “Tesla has long realised breakthrough innovation demands the integration of multiple disciplines. Elon Musk saw depending on foreign suppliers as a weakness, not cost savings. At the Palo Alto headquarters, visitors would notice the dramatic use of vertical integration.” Looking ahead, “Tesla [had] started developing its own battery chemistry with partners like Panasonic… [and] it is also building its Gigafactory which will allow it to produce batteries at a scale that exceeds the current capacity of today’s global supply chain, and drive down production cost to an unprecedented level.”

Elon Musk has said, “What we are doing at the Gigafactory is consolidating the production of the pack all the way from the raw materials, so there’s literally … rail cars of raw materials from the mines, and then out come completely finished battery packs”

Musk is bringing the lessons of a bygone era, a golden age of American business, back to life, via vertical integration. “And just like that, the company [Tesla] has fused together electronics, software, and metal and batteries that traditional automakers are now struggling to match.” It’s fascinating that while so many American media outlets troll Elon Musk, instead the South China Morning Post* teaches its business executives that, “Tesla taught us important lessons about innovation. To stay on top of competition, we must ask ourselves… as a thought experiment, imagine Elon Musk were to enter your industry, what would he do differently from the others?” more

Institutional Inertia and electric cars

In theory, Institutional Inertia is completely understandable. Companies that have been in business for a few decades have developed a bunch of lovingly-held procedures and practices.  When you find something that reliably works, you tend to stick with it and use it in other applications. After all, there usually are other matters that don't work so well that can use the institutional inventiveness. Because it is the collection of reliable methods that form the core of Producer Class success, it isn't at all surprising that such ventures become technologically conservative over time. Institutional Inertia grows out of the same impulse that produces excellent goods.

Unfortunately, sometimes Institutional Inertia just gets in the way. Today we learn some more about the reluctance of the German automobile industry to get serious about building electric cars. The list of institutional reasons are as long as your arm. At the head of the pack is the mostly-admirable trait of the serious manufacturers that they know best as in "Why should we involve our customers in design decisions—after all, they pay us to know more about cars than they do. If we make the best product we can, they will buy it." These are people who are corporately trained to ignore outside influences.

So even though the German government wants the auto giants to change their ways and have offered to assist the project, and the Chinese have threatened to seriously alter their biggest market, the biggies are still in a "mom, do I hafta" mode when it comes to electric cars. It doesn't have to be that way, of course. After all, all the Germans already excel at the hard parts of automaking. In fact, this is a main element of their Institutional Inertia. In a chart below, we discover that on average, 12, 770 Euros go into providing the internal combustion drivetrain of every car—all parts made unnecessary in an electric car. These are parts that form the soul of the corporate identity—if you ever get a chance, ask a Mercedes engineer about their engines and transmissions.

Elon Musk knows that the important part of an electric car isn't the engine and transmission, it's the batteries.  That is why he is betting the ranch on his battery gigafactory in Nevada. But even though he is trying to produce 500 thousand cars a year, that number is still is tiny compared to the 80+ million internal combustion vehicles sold last year.

See also my report of DW's coverage of Germany and electric cars.

Asleep at the Wheel

German Leaders at Odds with Industry over Electric Cars

The government in Berlin fears that German automobile companies are lagging behind as electric cars pick up speed around the world. Faced with immense challenges and the potential loss of tens of thousands of jobs, the industry is still pushing its gas guzzlers.

By Horand Knaup, Michael Sauga and Gerald Traufetter
December 01, 2016

It just looked like an inconspicuous entry about a draft law on the Chinese Industry Ministry's website. No one in Berlin noticed it until an attentive diplomat at the German Embassy in Beijing came across it and rang the alarm. Luckily, the person best positioned to address the matter was already on a plane to China.

German Economics Minister Sigmar Gabriel was on his way to the country to discuss German-Chinese trade with the China's leaders, but after news of the draft law made the rounds of the minister's delegation, they couldn't stop wondering: Could this really be true? Would every seventh automobile sold in China soon be required to be electric -- and as if that weren't enough, would it also have to be manufactured primarily by companies owned by Chinese citizens? And what would that mean for German manufacturers? Would they be driven out of their most important market? "This is like a bomb dropping," groaned one German industry representative.

The questions raised by the ministry website remain unanswered today, but the shockwaves it triggered are still being felt. With the German automobile industry's record sales and manufacturing figures, and its artful engineering of everything from turbochargers to 4-wheel drives, politicians and business leaders here had maintained the illusion that others would be incapable of catching up.

Are German Carmakers Falling Behind?

With the trend in electric cars picking up, and not just in China, Berlin government circles are increasingly worried that the apparent technological dominance of Daimler, BMW and other German carmakers could soon be a thing of the past. Germany's industry value is being "put to the test" on a "scale that perhaps hasn't yet been totally registered," Chancellor Angela Merkel warned last week in parliament. Economics Minister Gabriel, who is also Merkel's deputy chancellor, pleaded with the industry "to preserve car manufacturing as the leading industry in Germany and Europe." An internal report from his ministry also warned that the companies in question are falling behind in the development of key electromobility components. There's a risk of "lasting dependence on Asian manufacturing," it warned.

The future of Germany's most important economic sector is at risk, and politicians in Berlin feel they have been left in the lurch by German carmakers. For nearly 10 years, Merkel and senior members of her cabinet have been working with industry leaders to prepare the fastest possible use of future technologies -- or at least they pretended to do so. They created a common electromobility platform, commissioned studies and expert opinions and the Chancellery also hosted a number of car summits. Everything that could be done to make Germany the "leading market," according to the term used at the time.

Today, that ambition has not become a reality. Whereas a respectable number of electric cars are already whizzing through the streets of France, the Netherlands and Norway, their share of the automobile market here hasn't even reached 1 percent. The coolest car in this market segment right now is the U.S.-built Tesla. And when a factory worker at Daimler or Volkswagen actually does get the chance to assemble one of the few electric cars on offer here, its core component, the battery, is usually manufactured in China or Japan.

If the situation remains as it is today, up to 40 percent of the supply chain value will be developed and produced outside the country in the future. "That can't be the aim of German carmakers," Chancellery Chief of Staff Peter Altmaier, whose position is cabinet level in Merkel's government, offers critically.

But how sincere has the government truly been in its efforts?

Divided Strategies

Given that the manufacturers earn a large share of their revenues with heavy diesel- or gas-fueled sedans, one industry representative scoffs that their visits to the government in Berlin primarily served to "protect the combustion engine." The companies were also deeply divided over their electromobility strategies. When, earlier this year, Merkel's government coalition debated possible government rebates for electric-car purchases, BMW CEO Harald Krüger called for the largest possible subsidies to be implemented when he spoke with Horst Seehofer, governor of the state of Bavaria, where the company has its headquarters. Around the same time, CEO Dieter Zetsche of Stuttgart-based Daimler had a chat with Barbara Hendricks, the environment minister of the local state of Baden-Württemberg, in which he voiced his opposition to the proposal. Volkswagen CEO Matthias Müller, meanwhile, is also reportedly opposed to the subsidies.

Industry and the government ultimately agreed on a 4,000-euro rebate per car, in what proved to be a tepid compromise that has had only a modest impact. Since its introduction in July, Germans have only submitted 3,343 applications for the electric-car rebate, far less than expected.

But given that the switchover to electric cars is picking up pace around the world, this doesn't make sense either -- a fact that the staff at Berlin's economics and research ministries have noted with concern. Electric cars are getting cheaper even as their performance improves and when it comes to combatting smog in many cities -- in both industrialized and emerging economies -- there is no alternative to the promotion of electric cars. If cities like Shanghai or Beijing move to ban combustion engines from their city centers in the future, German carmakers will have no choice but to respond -- especially if their diesel vehicles are burdened with a reputation for cheating on emissions test.

Now hardly a day passes without the CEO of a German carmaker presenting himself as a friend of the electric motor and announcing the production of new e-model. Their lobbyists in Berlin also continue to sing the same tune they always have: that they should have the most leeway possible for their fossil fuel-powered cars and the least risk exposure possible in developing electromobility.

Costs vs. Jobs and Know-How

The Chancellery and the Economics Ministry have spent years trying to persuade German manufacturers to establish their own joint battery-cell manufacturing facility. Just recently, Matthias Machnig, a senior official in the Economics Ministry, invited companies to his Berlin offices to champion the cause -- with a modest degree of success. Automobile industry officials don't believe it makes sense to establish a factory that would cost billions to create at a time when storage modules can be purchased cheaply and in vast quantities from Asia. The companies aren't interested in investing until the new battery technologies they are currently researching can be viably produced. There's also a fundamental conflict between the companies and government: The carmakers don't care where they get their supply parts from. Politicians, on the other hand, want to create jobs and maintain German expertise.

That's why Economics Minister Gabriel is now increasing the pressure on carmakers. "We should launch a major initiative to build up independent battery-cell production and research for all European carmakers," he urges. Gabriel would like to see "the participation of all relevant companies." He's also trying to entice them with government money. "The European Investment Fund issued by European Commission President Jean-Claude Juncker could also provide financing for companies," he says.

But it is uncertain whether those companies will bite. They fear creating new financial burdens given that they are already having to pony up to develop new electric and more environmentally friendly combustion engines.

Auto industry lobbyists in Berlin are currently pursuing a contradictory strategy: On the one hand, they want to spur sales of electric cars. At the same time, however, they are also trying to defend their diesel- and gasoline-fueled cars from what they see as overly stringent environmental regulations.

Industry Wants Looser Rules

Matthias Wissmann, president of the German Association of the Automobile Industry (VDA), wants to help ensure that combustion motors still have a long life span ahead of them. After all, his organization claims, gasoline and diesel motors can be operated with emissions levels that are close to CO2-neutral if environmentally friendly fuels are used -- so-called e-fuels, synthetic fuels that are manufactured using a chemical process powered by wind or solar power. VDA is promoting it as a zero-emissions technology. The only problem is that the process should primarily be used for aircraft or ships that aren't really suited for electrical propulsion. That, at least, is the view held by the Environment Ministry in Berlin.

The lobbyists are also urging the timeframe for the enforcement of stricter emissions standards in the coming years to be eased. They have already submitted a proposal to the Economics Ministry that would allow cars to emit more climate-harming CO2 if they are also equipped with environmentally friendly technologies like adaptive cruise control or fuel-saving drive programs. With a mix of technologies, the companies are hoping they can meet fleet emissions targets even with their expensive gas-guzzling models.

Carmakers are also trying to find ways to ensure that their heavy diesel sedans won't get booted from city centers in Germany. Cities like Munich and Stuttgart, where emissions levels are significantly higher than legal limits, are considering bans on the cars in inner-city areas.

In the meantime, Daimler and other carmakers have developed new diesel motors with lower emissions than previous models. And the companies are fighting to ensure that their vehicles will still be allowed in city centers in the future. Their original idea was to develop a "blue plaque" for diesel cars with engines that meet EU emissions limits. In some areas, only cars containing the plaque would be allowed to operate. The industry also managed to score a major supporter in the form of Winfried Kretschmann, a member of the Green Party and the governor of Baden-Württemberg, a state that is home to many carmakers and suppliers.

In the end, the government couldn't come to an agreement on the blue plaque and it is now working on an alternative model that would provide municipalities with greater powers to intervene, with the presentation of the new idea expected by Christmas.

Be it through e-fuels, environmental technologies or blue plaques, it's clear that carmakers are desperately looking for ways to keep their models with combustion engines attractive. They're also counting on the idea that the government has no interest in creating a crisis with its climate-change policies for an industry that is one of the country's biggest employers .

German Transportation Minister Alexander Dobrindt says that the situation is changing fast and that "no one can predict which companies will be among the largest carmakers in the world in 10 years."

It's a race against time or, as Chancellor Merkel recently put it: Either the industry will succeed in a turnaround or "it will be trumped by others." more