On the Southwest American Drought: Looking to China

Lake Mead, a reservoir outside Las Vegas serving 40 million people in Nevada, Arizona, Southern California, and Northern Mexico, was at its lowest level (i.e., below 1,080 feet) in April 2015 since it was formed with the Hoover Dam.[1] Particularly for California, whose snow-melt would again be minimal, the continued drought was quickly turning dire. With a surplus of rain-water coming down on western Washington and Oregon, the U.S. Government could have dusted off FDR’s Civilian Conservation Corps (CCC) to activate the long-term unemployed (and the imprisoned) to assist the Army’s Corps of Engineers in constructing aqueducts and digging canals that would hook up with the extant canals running from the delta area north of Sacramento to southern California. It is not as though the Oregonians and Washingtonians would miss the water, and the Californian farmers could see to it that their best produce finds itself up north. Yet as easy as such a large-scale governmental project seems, the devil is in the details, which can actually be rather huge in themselves. China provides a useful case study that the Americans could, conceivably at least, benefit from—should they endeavor on a truly large-scale governmental project.

By April 2015, the Chinese central government had spent 308 billion yuan ($50 billion) on the South-North Water Transfer Project.[2] It’s sheer size is not for the faint-at-heart. The project “takes water from the Yangtze River and channels it across a half-dozen provinces and more than 1,700 culverts, aqueducts and other man-made structures.”[3] More than 400,000 people had been relocated. In spite of all of this effort, many towns in need of the water were continuing to pump up ground-water—causing the ground to sink even more. The shortage of water in Northern China had prompted cities to over-rely on their respective wells. Unfortunately, getting water that way was cheaper for the cities than from the transferred water via the project’s massive canals. Adding still more incentive to stay with the status quo, the cities in need of water had to build related infrastructure, including pumping stations and processing plants, in order to have access to the water from the project. Leaving this last bit to the city governments was not the smartest move by the project’s planners.

The lapse is particularly sad, given all the credit the Chinese government is due for having thought of and embarked on such a large-scale project capable of solving such a potentially devastating problem. At the time, Californians would have been aware of just how dire a water-shortage can be, yet the government of California was merely constructing more reserve-basins and ordering municipal water utilities to cut water-use by 25 percent. With all the surplus rain-water along the coast and western mountain-range in Oregon and Washington, why the U.S. Government had not stepped in to construct a massive Northwest system of massive canals taking the surfeit runoff to California is baffling to me.

The academic literature of international political economy may provide an answer. To explain why the Asian countries like Taiwan and South Korean have developed economically whereas Latin-American countries such as Panama have not, the literature distinguishes between strong- and weak-state countries. A strong state, or government, is able to resist pressure from society to consume governmental revenue. A strong state, for example, can say no to corporate welfare, for example—not just to spending more tax revenue on food-stamps!—whereas a weak state succumbs to corporate and other lobbying. The U.S. Government is a weak state because of the influence that defense-contractors, Wall Street, and corporate America have on members of Congress and the president. Put another way, after having spent roughly $4 trillion on the U.S. military in Afghanistan and Iraq, and trillions more in fiscal and monetary policy in the wake of the financial crisis of 2008, spending tens of billions more on a water-transport system linking the northwest with the southwest (including Arizona) was not even on the radar screen.

The difference here between China and the United States is not merely one of priorities; the Chinese government is stronger with respect to fending off powerful interests in China who want money from the government. The difference, in other words, is not between democracy and dictatorship; rather, plutocracy is a weak-state form of government (e.g., the U.S.). To be sure, dictatorship brings with it a myriad of problems, but that of being a weak-state incapable of large-scale infrastructure projects is not one of them. In the literature, democracy is associated with weak-states in Latin America—the electorate being able to vote for candidates promising more consumption of government resources at the expense of the sort of investment in infrastructure that could bring in foreign-direct-investment (i.e., multinational corporations). Similarly, we can add plutocracy to the weak-state side of the ledger. Whereas plutocracy is inherently weak from the standpoint of a government being able to resist pressure from private wealth, democracy is not so, as a citizenry can vote in candidates who campaign on resisting corporate welfare, whether to Wall Street or Lockheed Martin.

In short, for all the credit that the Chinese central government deserves in having gotten the huge canals built—and why were not the governments of California, Oregon, Washington, and the U.S. talking in similar terms?—a mammoth project must be designed beforehand with everything covered—from the intake of the water to the flow into municipal pipes. Otherwise, the entire project can falter. “Water, water all around, but not a drop to drink” could otherwise apply. Were the U.S. Government to contemplate such a massive project to solve the water-shortage in the Southwest, the planning should include an analysis of the financial incentives and disincentives that every actor along the process, including at the end-point, would have. Water flows downhill, and the incentives must likewise. Otherwise, a dam could pop up that keeps any of the water from reaching the end-users.

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[1] Reuters, “Lake Mead on Track for Record Low Water Level Amid Drought,” The Huffington Post, April 24, 2015.

[2] Te-Ping Chen, “China Water Project Leaves Some Cities Dry,” The New York Times, April 24, 2015.

[3] Ibid.

Democracy as an Anti-Trust Criterion: The Comcast Time-Warner Merger

As the U.S. Department of Justice and the SEC were reviewing the proposed merger between Comcast and Time Warner in April 2015, six U.S. senators signed a joint letter opposing the $45 billion deal. Comcast would control about 30 percent of the pay-television subscribers in the U.S. and an estimated 35 to 50 percent of the American broadband internet service.[1] That more senators had not signed on is telling with respect to how business-oriented American society had become.

At the time, the Justice Department was investigating whether the takeover would harm competition, while the Federal Communications Commission was evaluating whether the combined company would be in the public interest. For their part, the senators wrote that the combined company’s “unmatched power” would reduce competition and hamper innovation, as well as lead to higher prices, fewer choices, and worse service.[2] Opponents more generally “portrayed Comcast’s effort as a land grab that would give the company too much leverage in the industry.”[3] In short, one company would have too much power over the future of television and broadband. What about over Congress? The silence alone on this question is telling.

Beyond the industry-level impacts, which would admittedly be quite significant, the plutocric ramifications are also striking. That is, the giant company would have so much financial muscle that its forays into campaign finance would likely have an anti-democratic impact. Members of Congress, for example, would be subject to greater temptations to do Comcast’s bidding at the expense of their respective constituents (and states). As recipients of political-campaign donations, elected representatives have an incentive to look the other way as a large corporation gets even bigger.

In 2008, for example, the largest single contributor to Barak Obama’s presidential campaign was Goldman Sachs. The $1 million contribution helped insure that the White House under Obama would not come down too hard on the bank (or Wall Street). Interestingly, the Dodd-Frank Financial Reform Act of 2010 does not give the federal government the authority to break up banks that are too big to fail. Similarly, a “super Comcast” would insulate itself in Congress against populist attempts to break up the company in order to bring more competition to the television and internet industries. I submit that anti-trust law ought to be strengthened to include the protection of representative democracy from encroachments from large concentrations of privately-held capital (i.e., large corporations).

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[1] Emily Steel, “6 Senators Urge Rejection of Comcast-Time Warner Cable Deal,” The New York Times, April 21, 2015.

[2] Ibid.

[3] Emily Steel et al., “Comcast Is Said to Abandon Bid for Major Rival,” The New York Times, April 24, 2015.

Anti-trust Enforcement in the E.U. and U.S.: Business, Government and Society

In 2014, the E.U. depended on Gazprom, a state-controlled Russian gas company, for one-third of the natural gas used in Europe. Meanwhile, Russia depended on the company for export-earnings. Moreover, both the E.U. and Russia view Gazprom from not only commercial vantage-points, but geopolitical ones as well. Both dimensions were in the mix as the European Commission weighed bringing anti-trust charges against the company in April 2015. At the time, the E.U.’s executive branch was already formally pursuing Google on anti-trust grounds. Relative to anti-trust enforcement in the U.S., the E.U.’s own represents a formidable attempt to open up competitive markets. We can generalize, in fact, to posit a more balanced “check and balance” between business and government in Europe.

Regarding the salience of geopolitics, the E.U.’s action could force Gazprom to “drop conditions with European utilities that restrict those utilities’ ability to share the gas with other countries.”[1] We need only recall Russia’s use of Gazprom to cut off natural gas to Ukraine in the midwinter “gas wars” in 2006 and 2009 to grasp the geopolitical weight on the Russian side of the “commercial transactions.” Even though an anti-trust action would also involve going after Gazprom for the more exclusively commercial practices of “thwarting its European customers’ efforts to diversity sources of supply, and . . . imposing unfairly high charges by linking gas prices to those of oil, rather than basing prices on global natural gas market rates,” the Commission’s decision-making process included the geopolitical element of Russia’s military involvement in Ukraine at the time. That is to say, going after even egregious commercial practices could have dire political consequences. Government regulation of business is not merely about market efficiency and effectiveness. In fact, Gazprom demonstrates just how salient geopolitics can be in the management of a company. 

In fact, government regulation is itself nestled in a broader social contract, even if implicit, between business and society. The greater a people’s ingestion of business values, the less likely is a government to pursue powerful companies on anti-trust grounds. Those companies may even have disproportionate influence politically. From this standpoint, the E.U.’s executive branch may seem biased.

For her part, Margrethe Vestager, the E.U.’s competition commissioner at the time, answered such criticism just prior to her visit to the U.S. In her view, going after Google for skewing search results in favor of its own shopping service is simply a matter of enforcing the law. “As enforcers, we build our cases on evidence and on interpretation of facts because the European Union as well as the United States is built on the rule of law.”[2] Although the definition of a market is different in the U.S., the relative dearth of anti-trust enforcement in the U.S. may have been her real message here. Rather than defending Google, Americans might see to it that their elected representatives represent constituents by pushing for more competitive and less oligarchic markets. 

To be sure, it is one thing for one government to go after a foreign company, and quite another for another government to go after a domestically-based company. It is also true, however, that a domestic company could have too much political leverage over its home government, especially if the societal values align with those in the business world. In the U.S., the relative value put on economic liberty and business values such as efficiency may ironically make anti-trust action in favor of more competitive (i.e., efficient) markets less likely; a pro-business society may actually be less favorable to the long-term best interests of a commercial system (while being more favorable to the more narrow interests of powerful companies).

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[1] James Kanter, “Europe Is Expected to Charge Gazprom in Antitrust Case,” The New York Times, April 20, 2015.

[2] Jessica Guynn, “EU Enforcer Means Business,” USA Today, April 20, 2015.

BuzzFeed’s Internal Firewalls Fall to a Conflict of Interest

In spite of the fact that public-accounting firms rely on their respective audit clients’ decisions to be retained to perform the next year’s audit, society deems an unqualified audit-opinion to be independent. The assumption is that the audit firms can police themselves, keeping their financial pressures from influencing the audit opinions. The ongoing temptation is of course to produce a clean opinion so as to be retained as the client’s public accountants. Unfortunately, someone at a given CPA firm must have authority requiring attention both to audit opinions and the firm’s own financial performance; internal policies separating pressure from the latter from reaching the former can thus be easily overcome from the vantage point of that authority. This vulnerability was on display in 2015 in the “dot-com” industry in BuzzFeed.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Electric Utilities Thwart Solar Applications: A Conflict of Interest Rewarding the Status Quo

Considering the contribution of coal-burning power-plants to atmospheric carbon-emissions and thus global warming, governments around the world should be encouraging rather than discouraging home-owners to install solar panels. That is to say, we ought not privilege the status quo when it has contributed so much already to an uncomfortable or even uninhabitable Earth for mankind. So it is unfortunate that energy officials in Hawaii’s government had to step in to pressure—no, order—the Hawaiian Electric Company to approve its “lengthy backlog” of solar applications.[1] I submit that the officials should have gone further in correcting for the conflict of interest in the utility. Put in the vernacular, electric companies tended at the time to screw customers who could sell back “home-grown” solar power. The root problem here is in the utilities’s dual roles of seller and consumer of power.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.