Thursday, May 30, 2013

Death by Debt

(1)  Hearken to this, the New York Times reporting on widespread failures of Chinese-manufactured solar panels. 

It was not an isolated incident. Worldwide, testing labs, developers, financiers and insurers are reporting similar problems and say the $77 billion solar industry is facing a quality crisis just as solar panels are on the verge of widespread adoption.

No one is sure how pervasive the problem is. There are no industrywide figures about defective solar panels. And when defects are discovered, confidentiality agreements often keep the manufacturer’s identity secret, making accountability in the industry all the more difficult.

But at stake are billions of dollars that have financed solar installations, from desert power plants to suburban rooftops, on the premise that solar panels will more than pay for themselves over a quarter century.

The quality concerns have emerged just after a surge in solar construction. In the United States, the Solar Energy Industries Association said that solar panel generating capacity exploded from 83 megawatts in 2003 to 7,266 megawatts in 2012, enough to power more than 1.2 million homes. Nearly half that capacity was installed in 2012 alone, meaning any significant problems may not become apparent for years.

“We need to face up to the fact that corners are being cut,” said Conrad Burke, general manager for DuPont’s billion-dollar photovoltaic division, which supplies materials to solar manufacturers.

The solar developer Dissigno has had significant solar panel failures at several of its projects, according to Dave Williams, chief executive of the San Francisco-based company.

“I don’t want to be alarmist, but I think quality poses a long-term threat,” he said. “The quality across the board is harder to put your finger on now as materials in modules are changing every day and manufacturers are reluctant to share that information.”

Most of the concerns over quality center on China, home to the majority of the world’s solar panel manufacturing capacity.

After incurring billions of dollars in debt to accelerate production that has sent solar panel prices plunging since 2009, Chinese solar companies are under extreme pressure to cut costs.

Chinese banks in March, for instance, forced Suntech into bankruptcy. Until 2012, the company had been the world’s biggest solar manufacturer.

Executives at companies that inspect Chinese factories on behalf of developers and financiers said that over the last 18 months they have found that even the most reputable companies are substituting cheaper, untested materials. Other brand-name manufacturers, they said, have shut down production lines and subcontracted the assembly of modules to smaller makers.

“We have inspectors in a lot of factories, and it’s not rare to see some big brands being produced in those smaller workshops where they have no control over quality,”

Set aside any nitpicking specific to engineering issues of solar energy:  our quarry is broader here.   The essential part has been boldfaced, and applies well beyond the details of plastic-vs-glass coatings of panels or whatnot.
Follow closely.  The point is not to concatenate a miscellany of kvetches, but to limn a causal narrative which links them, and which therefore possesses a certain predictive power.

[Update 4 June 2013:   The US isn’t the only country that has a sour taste over Chinese solar panels:]

A quelques heures de la décision de la Commission européenne, qui doit indiquer ce mercredi si elle va finalement imposer des sanctions commerciales contre les industriels chinois du photovoltaïque soupçonnés de dumping , le Premier ministre chinois, Li Keqiang, vient de monter en première ligne pour menacer directement Bruxelles.[NL_8h]-20130604-[s=461370_n=2_c=204_]-1664277@2

(2)  During the March of the Seven Dwarfs, otherwise known as the Republican Presidential primaries, in a series of brow-wrinkling essays  I said various unkind things about the likes of Romney, Trump, and Adelson.  My primary objection was not that they are blood-sucking bosses -- there have always been blood-sucking bosses, and the best of them helped build the railroads (or at least, encouraged the sweating workingmen to do so).  The objection is that they mostly don’t really make anything of use  -- they are gamblers, and largely with Other People’s Money.
So now the prospect is, becoming maidservants of Chinese blood-sucking gamblers.   Since America has long been putting itself in hock to China, it is difficult to say no.  (Confer the role of Chinese creditor-banks in the case of Suntech, supra.)

~  Posthumous Endorsement ~
"If I were alive today, and in the mood for a mystery,
this is what I'd be reading: "
(My name is Daniel DeLeon, and I approved this message.)
~         ~

Distinct from these considerations, though related, is another secular trend  tending to undermine incentives for business to aim for long-term health (let alone the public good):  the long-standing and oft-remarked upon widening divorce between ownership of enterprises and their management.
Back in the days of “Someday, son, this will all be yours” (familiar to us all through New Yorker cartoons, though no longer by direct experience)  the Chief had an incentive to insure that the business was a sound and going concern for the long term, even after his own personal demise.  He might sweat his workers, but he must not work them literally to death, since they would continue to be needed.  Moreover, the business could not be founded upon gimmick, fad, or false advertising, since with these, before long, the jig is up.
Whereas nowadays, it is objectively in the managers’ self-interest to boost their own salaries and (especially) bonuses  by means of whatever bookcooking flimflam lies to hand: for by the time the firm goes belly-up, they’ll be long gone, cruising around the Mediterranean  on yachts  bought with their winnings.
Nor will the shareholders and creditors necessarily call out the management on such practices, since, so long as their own share price does well during the thus-inflated bubble, they can cash in the short term, whatever train-wreck may later ensue.  (BTW -- None of this is really political or polemical;  it’s simple arithmetic.  If you have a problem with any of it, your real beef is with the Peano Postulates.)

(3)  The solar-panel fiasco is relevant to an issue now very much on the table -- top story of the day, in fact, as it would represent the largest Chinese investment in US industry to far: the threatened takeover of Smithfield Foods by China’s Shuanghui.
Now, the loss of US control would be bad enough.  But might we anticipate a similar degradation of quality? -- Well, we need not speculate, since in this case, that scenario lies not in some misty hypothetical future, but in the documented recent past, when these champion cost-cutters spiced their pork with tasty carcinogens:

(4)  Also very much in the headlines these days:   Chinese cyberattacks against the US.
Basically, whatever they can steal over the insecure Internet (such as detailed blueprints to advanced military aircraft), they steal, thus saving the cost of Research & Development.   But it is (so far) still hard to electronically purloin a sausage.   So they snap up a (fully functional) US firm (possibly using the same money that we have long been sending over there to buy their trinkets).
High-level meetings on the subject are taking place.  But -- Where can the US find any leverage to make China cease & desist from their thievery?
Well, for starters, by nixing the Smithfield deal.

(5)  The above is fairly straightforward connect-the-dots.  And now a less linear, more ‘recursive’ argument.

(a)  It is a matter of merest logic that the entities (companies or organizations) most strenuously opposed to government regulation, are those that intend to infringe such strictures.   
(b)  Once the corner-cutters and dice-rollers have their way (be it S&L’s or meatpackers), entities initially more inclined to prudence and honesty  are under objective economic pressure to do likewise.  Again, this is almost a tautology.
(c)  Suppose now that a population (be it of businesses or creatures) has evolved to relative equilibrium  in either of two separated (economic/biological) ecosystems, reaching phenotypes respectively A  & B.   Now connect them with an isthmus (globalization/ecotone).   Now A & B compete directly, head to head.  If, in particular,  A consists largely of “doves” and B of “hawks” (in the terminology made familiar by John Maynard Smith and by Richard Dawkins), then some percentage of the dove population needs to mutate into hawks if they are to survive.

Thus, the logical skeleton;  in the philosopher’s sense, it is virtually analytic.   The schema thus applies widely.   For the particular cases at hand -- say, a potentially sinified Smithfield -- fill in the contingent details from your own extensive reading in the press.   Our own home-grown capitalists are no angels:  given the right environmental pressures, they too will sink even farther towards the bottom.   Thus deals like Smithfield/ Shuanghui  have implications for companies and consumers well beyond those whose dietary favorites run to fatty, chemicalized, or diseased meats.

*     *     *
~ Commercial break ~
Relief for beleaguered Nook lovers!
We now return you to your regularly scheduled essay.

*     *     *

(6)  Pork particularities
In their  piece this morning on the Smithfield deal, NPR was marveling that China might well keep on some of its American managers, for their expertise, for a while anyway.  “Do you mean” gurgled the interviewer “that China wishes to learn from us?”  (Visions of a starry-eyed admiring youngster, arms clasped around his knees, seated at the feet of the Wise One.)  “Exactly!” crowed the ‘expert’, reveling in his fifteen seconds of fame.
Umm… China certainly does want to ‘learn’ from us, though mostly they do it via espionnage  (see (4) above).
Kept on for a time -- on a short if gilded leash -- these rent-a-managers (Kelly boys, let us call them) one day will disappear, no-one knows where;  and the sausages temporarily  will taste a little spicier.
Indeed, this business is a natural match:  a match made in Purgatory, you might say.  Whenever China has a surplus of dead dogs, placentas, aborted or sewer-piped fetuses, the gleaming glistening sausage machine stands ready at attention.   And in this way, the Chinese can earn the coveted green “Recycled” symbol.  Bon appetit!

(7)  The prospects

The most important danger is not the comparatively visible and high-profile one of shoddy, defective, and toxic Chinese products.  As we import their products and their management, we shall -- barely noticing it -- import their human values.   For a glance at these, click here:

The exported cultural effluvium will, to be sure, be modified by the local ecosystem it washes up on, with somewhat unpredictable results.   So to get a glimpse of the future, we should examine the present,  at that beachhead of Chinese commercial practices, that early Sino-American biotonic isthmus:  Wal-Mart.    This entity deserves our focus,  not simply because it’s familiar to consumers, but because it has a real heft in our economy:  Wal-Mart is the nation’s largest private employer.

The first Sinitic influence upon Wal-Mart  was the challenge of accommodating a high-capacity/how-cost/low-quality Asian supplier.  Wal-Mart’s response was to emphasize volume and price -- qualities by no means out of keeping with modern American business practice, but pursued with a systematic single-mindedness that was unusual.  As it happens, I was afforded a glimpse into their business ethic, roughly a quarter of a century ago, from the side of the supplier, rather than the more widely known consumer side. …. [TBC, if reader interest warrants.]

More in the public eye of late, and quite disturbing, has been Wal-Mart’s effect upon labor relations.  As, this  from today’s Los Angeles Times:

For years, politicians and labor unions have pilloried Wal-Mart and other large employers for paying workers so little that many qualify for government health insurance at taxpayers' expense.

Now critics fear the public will get stuck with an even bigger tab as California and other states expand Medicaid as part of the federal healthcare law. That has California lawmakers taking aim at the world's largest retailer and other big firms.

Legislators, backed by unions, consumer groups and doctors, are calling for fines that could reach about $6,000 per full-time employee who ends up on Medi-Cal, the state Medicaid program for the poor and others. They say this would eliminate a loophole in the Affordable Care Act that encourages large retailers and restaurant chains to dump hourly workers onto the government dole because there's currently no penalty for doing so.

The outcome of this California battle could have national implications as other cash-strapped states search for ways to shore up safety-net programs that are bound to be stretched by a massive healthcare expansion.

"There are concerns that employers will be gaming this new system and taking less and less responsibility for their workers," said Sonya Schwartz, program director at the National Academy for State Health Policy. "This may make employers think twice."

The federal law imposes a separate penalty if large employers don't offer health insurance to employees who work more than 30 hours a week on average. In response, a growing number of employers are cutting some workers' hours to keep them under that threshold and avoid the expense of providing coverage.
Under the federal law, if those workers qualify for subsidies and buy their own coverage in government-run exchanges, the fines on employers can reach $3,000 per worker. But there's no federal penalty if a company's workers become eligible for Medicaid.


[Update 3 June 2013]  The Chinese Ministry of Food Industry has sharply protested the post above, claiming that the People’s Republic takes just as good care of its workers as it does of its livestock, as witness … mm, never mind.

[Update 4 June] 

[Well, that's it.  Enough of this.   Why not take in a movie:
Meet the Murphys (and the "dame" dame). ]

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