Re: Fuel Cells et al (gas go boom?)

Hagbard Celine (hagbard@ix.netcom.com)
Sun, 07 Sep 1997 13:26:24 -0400


Abraham Moses Genen wrote:

> When I asked for information about the possible substitution of a fuel
> cell operated by hydrogen as a substitute for the internal combustion
> engine as proposed and developed by Mercedes, my main concerns, among
> others, however, was the possible necessity of re-tooling all of the
> automobile plants in the world.

In a free, competitive market, auto manufacturers will retool their
plants only if good for their long-term, bottom-line profits.

However I'm not convinced that corporations care about long-term
viability as much as they used to (at least in the U.S.).

There are competing interests involved here: shareholders and
corporations. Shareholders are individuals interested in making money as
quickly as possible while corporations are entities interested in their
own
long-term viability.

Short-term vs. long-term.

This is a common tension in business as well as politics. How do we plan
for the future without sacrificing the present?

IMO, the increased volatility of American financial markets in recent
years has destroyed the little balance that once existed between these
two poles. Few investors, in light of the day-to-day jumps and drops of
once-stable securities, are interested in long-term holdings. Indeed
many investors, speculators as the extreme example, concern themselves
with the movements of tiny slivers of the economy, often overreacting to
the sometimes contradictory information that spills across the media.
Thus, while management would normally seek to secure the future of a
corporation by investing its available assets into new projects,
research and development, and state-of-the-art facilities, in practice,
management reacts to this investment pattern by placing undue emphasis
on the short-term bottom-line, i.e., current earnings.

This seems to occur because increased current earnings means improved
stock performance. That is, the ability of a business to raise
additional capital, whether by equity or debt, depends largely upon the
marketís current valuation of the companyís shares. Managers are thus
willing to diminish the priority of long-term corporate investment in
exchange for strong, but short-term, stock performance, thereby ensuring
a steady stream of capital for other purposes. Furthermore, the dramatic
increase in hostile takeover attempts that characterized the 1980s has
had an undeniable effect upon most corporate management. The best
anticipatory defense to a hostile takeover is for management to keep the
stock trading at a high price to minimize the lure any control premium
might offer. Thus, managers have only good reasons for concentrating on
the short-term earnings potential of the corporation. High stock values
keep shareholders happy, ensure steady streams of raw capital, and have
the unique ability to thwart takeover attempts.

The ultimate result of the current short-term fixation is an
ever-aggrandizing problem:

1) Market volatility causes investors to concentrate on their short-term
gains;

2) As managers concentrate on spurts of current earnings to keep share
values intact, investment takes second priority. Without research and
development, state-of-the-art factories, robotics, etc., American
companies will be hard-pressed to compete with the burgeoning Pacific
Rim industrial powers. This can only result in a loss of the American
technological initiative and continuing yearly trade deficits;

3) With the lack of a deliberate investment plan providing the
foundation for growth, the degree of oscillation between good earnings
years and bad earnings years becomes wider and wider. This oscillation
translates to market volatility. A volatile market hurts the little
investor disproportionately as it becomes impossible to keep up with
ever-changing information, much less develop a coherent investment
strategy. This in turn causes more people to place their money into
mutual funds, whose block purchases and sales can only breed more
volatility, and;

4) Finally, as noted, market volatility breeds an investor who is overly
concerned about short-term wealth.

5) Here, the cycle begins again.

Unfortunately for technophiles like myself, this cycle means that U.S.
corporations are likely to sit on innovations which have little
short-term benefit (or in the case of this new hydrogen fuel cell,
innovations that mean possible short-term losses) until the short-term
benefits increase. Short-term benefits increase only when everyone else
has already upgraded to the new technology and it becomes a survival
issue.

> The other possible effects would include a
> change in some of the balances in powers due to the possible lessening of
> dependence on mid-east oil,

Yet another reason why this technology might be squelched in the U.S.
Vested oil interests in the form of big-money corporations have lots of
money to throw around to legislators and connnected lobbyists. If the
oil trade is ever threatened in the U.S., expect a tooth-and-nail fight
to end all fights.

> the controls --if any -- over the production
> and distribution of hydrogen as a fuel, the ecological effects and any and
> all possible socio-economic changes and other such contingencies.

Government, which is inherently conservative (in the literal, not
political sense), will always try to stem the flow of fast-paced change
to avoid wrenching the status-quo out of shape. When revolutionary
changes begin to happen at the pace many on this list and elsewhere are
expecting, government will have to stem a torrent. I'm not convinced
it's up to the challenge.