by A Country Gentleman | December 10th, 2009
“We used to make things in this country. Now we just pick the other guy’s pocket”- The Wire, Season 2
The only way Congress is able to pass any sort of regulatory legislation is if there is a deep pocketed lobby who is able to turn a profit due to the regulation or profitably exploit a loophole within it. It also helps that the very industry to be “regulated” very often gets to write the regulations. See Enron Loophole for an example. Do not doubt for a minute that Cap’n Trade is getting pushed through because financiers smells a profit. The profit just happens to come at the expense of your job. To wit (and italics added for emphasis):
“The EU Referendum blog has a fascinating story on how Cap’n Trade–or, as it’s called in Europe, the “emission trading scheme”–works. It seems that the Corus Group, a London-based steel maker that is a subsidiary of India’s Tata Group, is shutting down one of its plants–a plant the company bought just two years ago “as part of its strategy to give it better access to European (including UK markets) [sic].”
Closing the plant, the site explains, will give the company an ETS jackpot:
With redundancy and decommissions costs, very little of that can actually come from the process of closing down the Redcar plant. But, with a capacity of 3,000,000 tons of steel, closure of the plant will deliver further “savings” over 6 million tons of carbon dioxide, worth an additional £80 million per annum at current rates but around £200 million at expected market levels.
This, even for a company the size of Tara steel, is a considerable windfall, over and above the money it will already make from the EU scheme. But, with a little manipulation, the company can still double its money. By “offshoring” production to India and bringing emissions down – from over twice the EU level–to the level currently produced by the Redcar plant, it stands to make another £200 million per annum from the UN’s Clean Development Mechanism.
Thus we see Indian plants being paid up to £30 a ton for each ton of carbon dixoide “saved” by building new plant, while the company which owns them also gets gets paid £30 for each ton of carbon dioxide not produced in its Redcar plant. That gives it an estimated £400 million a year from the closure of the Redcar plant up to 2012–potentially up to £1.2 billion. And that is over and above benefitting from cheaper production costs on the sub-continent.
So the company gets a windfall for moving jobs from Britain to India, and the new plant will produce no less carbon than before. Brilliant, isn’t it? We can’t wait till America has such a policy.”
This severing of productivity from profit is the next major step in the financialization of the economy.
The large scale production-profit model has been in place for a few hundred years. It is remarkably simple- produce something, sell it (in quantity) for more than it costs to make, and one turns a profit. Finance was an auxillary to this model in that it was needed for starting or expanding a business, manufacturing plant, purchasing raw materials, etc. Within the past 30 years or so, Finance has become its own engine, effectively replacing manufacturing, and to a lesser extent services, as a dominant engine of wealth creation.
Now what cap ‘n trade does is turn that upside down. One can now make a profit by not producing anything at all. In fact, as Tata has proved, one can idle production and make a fantastic amount of money. The obvious downside is that only so many people can exploit this model. This leaves most of us, those for whom the production-profit model has provided wealth and comfort beyond the imaginings of our ancestors, looking at a future where a wealthy elite (because who else runs a steel consortium, or an auto maker, etc) turn a profit by idling the dominant mechanism of wealth creation.
Outside of the cap ‘n trade construct, such a proposition is the stuff of a Monty Python routine, or a biting work place satire, not a serious model of a future business practice.