The Bribing of the 'Me Now' Generation

By J. A. Casazza

Life Fellow -- Institute of Electrical and Electronic Engineers

During the past year there has been increasing attention by the American Public to the use of business and government to generate personal wealth or power. Some of this has been focused on the raising of campaign funds and the many evils involved in the way this has been done from the sale of a night in a White House bedroom, coffee with the President, and special favors through the Department of Agriculture. We also have a large number of our politicians and press who tell us that economic benefits are more important than morality, particularly when it deals with the behavior of our President, and much of the American public agrees. These are merely the tip of the iceberg that may sink our way of life, our Titanic. We need to look much deeper to avoid the national disaster which we now face.

I have limited knowledge of national affairs having been heavily involved in only the activities related to the restructuring of the electric power industry. These activities have clearly shown that those involved are not concerned about the overall welfare to the American public, but merely their own financial welfare. They are involved in a massive effort to shift wealth, shift cost, shift economic benefits from one group to another with themselves, of course, receiving the benefits while others pay the extra costs.

Why does the American public not only accept, but sometimes support such activities? In fact, they hardly even notice or care about them. It is because they have been bribed! They have been told that these changes will lower their cost of electricity and that they will profit through their investments. Buy these bonds, you will make a good interest rate and they involve no risk. The public is not interested and are not being told the source of the money they are making or who is taking the risks. Most stockholders, investors and financial institutions really don't care. They close their eyes and look at a stock's earnings, how fast its market price is increasing and then decide what stock to buy.

We live in a "me now" generation. Most want economic benefits now (the bribe) and are willing to accept an immoral President, regardless of the long term effects on the country. They are not concerned about the future degradation of our society and culture that will result.

I am a practicing Catholic and wonder why Church officials do not speak out vigorously against the obvious evils, the many clear violations of our laws. Have they been bribed by their tax status? Are they following the example of political correctness set in the Germany of the 1930's where one benefited by ignoring what was going on? While this is evident in many areas, because of my background, I will focus my detailed comments on the restructuring of the electric power business.

Support for this restructuring has been garnered from a large number of groups who will receive economic benefits. These include:

1 -- The bankers and investors who will profit from the many purchases and sales of existing facilities, companies and securities.

2 -- The marketers, brokers and futures traders who will buy and sell the same power many times, the new "middlemen" who will profit from each purchase and sale.

3 -- The lawyers who will have to write the many, many new contracts required and revise many of the existing ones.

4 -- The engineers, having the knowledge required by those playing the new financial games, who will gain from the increase in engineering jobs not otherwise needed and higher salaries that result.

5 -- The accountants who will be employed and receive additional fees as a result of the large additional "transaction costs" that result from many new players and complicated deals.

6 -- The companies that make and will sell billions of dollars of meters not needed except for the proposed "retail wheeling."

7 -- The large industrial firms who will have lower rates at the expense of higher rates for the residential consumers.

8 -- The consulting firms that support actions and fail to testify in opposition to actions which they know will be harmful to our country. (I have been one of these.)

Are these financial rewards bribes? Are those accepting these rewards really concerned with the increase in total cost to the public that will accrue as a result of all these benefits they obtain? Those investing in the stock of the many companies who are now involved in the restructured electric power industry, the power marketers, the independent power producers, etc., are being told they will make far greater earnings on their investment than if they had been put into a traditional utility. This may be true, but it involves significant extra cost to the general public. Are they concerned about who pays these costs? All cost increases must be paid by the customers of electricity or the stockholders, or the taxpayers. There are no other sources of money in our society.

In California, the power system has been restructured to give all consumers a choice of power suppliers. A rate reduction to consumers of 10% was promised and given. However, a competition transition charge (CTC) of about 17% is being added. This results in a net increase of 7% to most residential customers. The total costs for the transition total from $20 billion to $30 billion, the so-called stranded costs. In addition, the costs to set up the new ISO, the power exchange, and the other associated charges have been estimated to be as high as $1.5 billion. Who has provided these funds? The rate payers? The stockholder? The taxpayer? Attempts to find out are met with stony silence. The end result? Everyone must pay 7% more so that one out of every 150 consumers can switch suppliers and make a lot of others rich.

Some of the engineers who assisted in the work involved in this change had to sign statements agreeing not to comment adversely or criticize the potential effects of these changes before being hired. They were bribed with consulting fees to silence them. The same thing happened with the California blackouts, no real review of the contribution of new industry structures to the blackout was made. Too many have to be politically correct to hold a job.

Many power plants are being sold. Most sales are generally for more than "book value." "Book value" is used to determine the capital related component in the present regulated charges for electricity. The new owners will have to charge more to recover their investment, again causing electricity prices to increase. It is pure fantasy, a kind of perpetual motion, to believe that institutional changes will increase costs, promise stockholders higher profits and consumers lower prices. Many perpetuating this myth are being bribed by high salaries and bonuses.

Last, but not least, are the bribes being taken by my beloved engineering profession. My lifetime training taught me that the engineer's role was to do it better and cheaper than others could. I believed (and I still do, that is why I write this article) that my professional obligation was to provide a reliable system, or produce a product while minimizing costs. I just returned from an international meeting in Paris attended by over 2000 from over more than 200 countries. Most discussions of new methods focused on how to increase profitability. This new generation of engineers is from the "me now" generation. Their professional goals and activities are based on the profits they can produce. A whole generation of engineers is subject to this bribe.

In all of this there is the question of the proper functioning of capitalism. I am a capitalist and believe in capitalism. I do not believe, however, that capitalism should have as its sole goal the maximizing of profits. The right to vote is a precious one. The great strength in capitalism is the right to vote with our dollars as well as at the ballot box. Every time we select a product or make an investment, we exercise this vote. Why are so many Americans failing to exercise this vote intelligently? Why are they concerned only with "me now" and ignore the impact on their children and grandchildren? (Yet they buy life insurance to provide for the needs of these future generations. Maybe there is hope for the future.)

Capitalism should not allow "robber barons" to reap huge profits off the top at public expense without contributing commensurable benefits to the public. Capitalism needs to reward those who make a better mouse trap, better equipment, better methods, and better technologies that will enable us to produce goods and services at a lower cost. These are where the rewards should go. Under many of the new procedures, the rewards are going instead to those who are skilled in financial maneuvering, skilled in playing financial games.

Our government does not seem concerned with this. Those who can make many of these huge financial gains from legislation and regulatory changes are quite willing to contribute some of them back to the political groups who are making them possible. In fact, this is an important contribution for campaign financing.

At the core of all of this is our banking and investment system. At the heart of this group are those who manage and invest the various pension funds, which provide as much as two thirds of our new capital. This system is required in the capitalist structure to pay and reward those who are involved in helping the American public make wise investments with its surplus funds. These investments should go to the areas where they will help produce better products, lower costs, and generally benefit the American public. For this service those providing the funds should obviously be fairly rewarded, and those who are helping them make the investments are important and should also be well compensated.

What we have now, however, is a banking and investment system where those who make bad decisions in advising the public in investing the public's money are often saved by our government and by the various international institutions. Specific examples are given by the recent decisions of the International Monetary Fund (IMF). It is obvious that those who mouth the mantra "market forces" expect the rest of us to save them from the disastrous results in the free market of some of their decisions. They want to be saved from the consequences of their bad investments and loans. We have a situation where Citicorp has $60 billion in Asian loans. Chase Manhattan Bank has $32 billion. J.P. Morgan has $23 billion. And Bank of America (of which I am a stockholder) has $16 billion. These bankers have made these loans without adequate security. They have taken risks with the public's money and now require governmental and international bailouts.

Isn't this a key reason why investors show little concern over the actions of those to whom they gave their money, why investors accept the "bribe" they receive? Is it fair that if a large bank makes a risky decision concerning investments and loses a lot of money, that the American public should bail them out without appropriate penalties to those who made the bad decisions? I doubt it very much. Is it fair that if a small businessman, or even a medium sized business, makes an investment decision which has excessive risk and as a result loses money, they are not bailed out by any of these federal or international institutions? Apparently the key to success in America is to take huge risks. If the government views the consequences of the bad results from these risks as so large that the overall country will suffer, they will bail you out. This is obviously not the way capitalism is supposed to work. If the government wishes directly to mitigate the effects of very large unwise investments, it should not provide funds to the financial institutions who have made huge profits while making these poor decision. Those running these financial institutions and those investing in them should suffer the consequences of their decisions.

Worldwide, our government, the World Bank, and many others, have focused on the importance of the application of market forces. This view permeates a great many decisions concerning financing and aid to developing and poor countries. Often, these countries are being forced to do something that in their hearts they know is wrong for them. This focus on immediate profits as the only parameter for judging what is wise to do and not wise to do is very damaging.

The market should not be the only arbiter of human life today. Capitalism, as part of the decision of investments, must also look at what is good for human beings. Unrestrained capitalism has just as ruthless disregard for human welfare as Communism. If capitalism is to survive, it must strike a balance between the pursuit of profits and social welfare. The striking of this balance is vital to the future of the world. It should be done in the Board Room as well as with government legislators.

What can one conclude from this? One can conclude that the core of our problems in the USA, whether it is the character of our President, campaign financing, restructuring the electric power industry, helping poor nations, is the excessive power given to a relative few under the guise that it is a part of increased competition. This dominant power has been given to those who control our pension funds and our investments, the government officials and the bankers, and those who are employed by such banks as the World Bank and the IMF. They are our new royalty. They are dominating our society while at the same time promoting unbelievable wealth and privilege for themselves. They are skilled at "bribing" the general public, the investors. They claim they earn the huge sums they receive. This new royalty needs to be examined carefully and their powers restrained.

Our society is now dominated with an obsession with our rights, our entitlements. "What is in it for me?" is the slogan of the "me now" generation. In the USA, we have a "Bill of Rights" which has provided us with our freedom. It was understood by prior generations that this required all to meet their obligation to keep those freedoms. In our history many gave their lives as a part of these obligations. We need a "Bill of Obligations" to guide us in the future. A good model to start with is the Ten Commandments.

September 1998

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