tag:theconversation.com,2011:/id/topics/industrial-17099/articlesIndustrial – The Conversation2018-08-10T10:41:50Ztag:theconversation.com,2011:article/1012252018-08-10T10:41:50Z2018-08-10T10:41:50ZApple’s $1 trillion value doesn’t mean it’s the ‘biggest’ company<p>On Aug. 2, Apple <a href="https://www.bbc.com/news/business-45050213">became the first U.S. public corporation</a> to achieve a US$1 trillion valuation, making it the largest company in the world – by one measure at least. </p>
<p>A <a href="https://www.nytimes.com/2018/08/02/business/apple-trillion.html">New York Times article</a> proclaimed that this milestone “reflects the rise of powerful megacompanies” that control a large and growing share of all corporate profits. It also warned that this phenomenon might be contributing to stagnant wages, a shrinking middle class and rising income inequality, suggesting regulators may need to rein them in or break them up.</p>
<p>But what exactly defines a “megacompany”? And what would make it so powerful that it needs dismantling, like “<a href="https://www.nytimes.com/1984/01/01/us/bell-system-breakup-opens-era-of-great-expectations-and-great-concern.html">Ma Bell</a>” back in the 1980s? </p>
<p>As a <a href="https://sites.google.com/a/umich.edu/jerrydavis/home">scholar of corporations</a>, I believe that if we want to understand – and regulate – big companies, it’s important to be clear on the very different meanings of “big.” </p>
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<img alt="" src="https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/231443/original/file-20180810-30464-zoiopc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">When General Motors was the most valuable U.S. company, it was big in many ways, including having the second-most employees.</span>
<span class="attribution"><span class="source">AP Photo</span></span>
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<h2>Yesterday’s ‘big’</h2>
<p>When Fortune magazine first wanted to <a href="https://drive.google.com/file/d/1JCjJ7e06Ywmk36aRfNaUoDxnJKUpPlPN/view">create a roster of America’s 500 biggest corporations</a> in 1955, revenue was the obvious way to think about size. </p>
<p>A “major corporation” was one that sold a lot of products. With almost $10 billion in annual sales, thanks to its <a href="https://www.cnbc.com/id/30962998">54 percent share of the U.S. auto market</a>, General Motors topped Fortune’s list that year.</p>
<p>But <a href="https://drive.google.com/file/d/1J9afXp_YOGiXnGDeKfVFbmISE6OXPAyC/view">GM</a> was also big in most every other way, including its stock market valuation or “market cap” (where it was No. 1), assets (No. 2, after AT&T) and employment (also just behind AT&T at 624,000). Indeed, for much of the post-war era the biggest corporations were big in every way, and market cap <a href="http://journals.sagepub.com/doi/abs/10.1177/1094428110376995">was very highly correlated</a> with revenues, employment and assets. </p>
<p>Not anymore. The post-industrial corporation of today is often heavy on market cap but, like Apple, light on employment and hard assets. </p>
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<h2>Let’s look at Apple</h2>
<p>Apple does not own the giant factories that assemble its popular phones – Foxconn does. Apple is notably <a href="https://www.nytimes.com/2018/08/06/opinion/apple-trillion-market-cap.html">light on tangible assets</a> like property, plan, and equipment, relative to its total assets. And with only <a href="https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm">123,000 employees globally</a>, Apple is not even among the <a href="http://fortune.com/fortune500/list/filtered?sortBy=employees&first500">50 largest employers in the U.S.</a>, in spite of operating a chain of retail stores. </p>
<p>So how exactly is Apple “mega”? In the eyes of The New York Times and Wall Street, it seems, primarily because it’s worth a trillion dollars. </p>
<p>Market capitalization is the market value of all of a company’s shares. By this measure of size, Apple is not alone in the stratosphere. On the day Apple passed $1 trillion, <a href="https://ycharts.com/companies/AMZN/market_cap">Amazon</a> was worth $895 billion, Google owner <a href="https://ycharts.com/companies/GOOG/market_cap">Alphabet</a> was valued at roughly $853 billion, and <a href="https://ycharts.com/companies/FB/market_cap">Facebook</a> was at $509 billion.</p>
<p>Yet just like Apple, their market caps belie more traditional measures of size. </p>
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<h2>Facebook vs. Kroger</h2>
<p>To illustrate this, <a href="https://journals.aom.org/doi/10.5465/amp.2015.0067">let’s compare Facebook with Kroger</a>. </p>
<p>In 2017, Facebook had <a href="https://www.sec.gov/Archives/edgar/data/1326801/000132680118000009/fb-12312017x10k.htm">25,000 employees and $41 billion in revenue</a>. Grocery chain Kroger – America’s third-largest employer – had <a href="https://www.sec.gov/Archives/edgar/data/56873/000155837018002753/kr-20180203x10k.htm">449,000 employees and $123 billion in revenue</a>. In other words, it would take 18 Facebooks’ worth of employees to make one Kroger, and the revenues of three Facebooks to equal one Kroger. The 135-year-old, (mostly) unionized grocer operated 2,782 supermarkets and hundreds of other stores across the U.S. Facebook’s revenues came almost exclusively from selling advertising. </p>
<p>Market cap, however, tells a different story: Facebook’s market cap on Aug. 2 was $509 billion. Kroger’s was a fraction of that, at less than $24 billion. That is, it took more than 20 Krogers to equal the value of one Facebook. This divergence was highlighted the previous week, on July 26, when <a href="https://www.theverge.com/2018/7/26/17619424/facebook-stock-market-decline-largest-ever">Facebook’s market cap dropped $119 billion</a> – five Krogers’ worth – in a single day.</p>
<p>So which one is mega, Facebook or Kroger? Is market cap really the measure we should be using to define what makes a company big? </p>
<p>After all, Facebook’s high valuation does not mean it has a half-trillion dollars sitting in an underground vault somewhere in Menlo Park. Its shares are mostly owned by outside investors (although <a href="https://theconversation.com/can-silicon-valleys-autocrats-save-democracy-73423">Mark Zuckerberg</a> still controls an absolutely majority of the votes and, therefore, the board of directors). And if we think of businesses as “job creators,” then the tech sector turns out to be a big disappointment.</p>
<p>Facebook is hardly alone in its employee-light approach.</p>
<p>Netflix, the global video-streaming behemoth, <a href="https://www.sec.gov/Archives/edgar/data/1065280/000106528018000069/q4nflx201710k.htm">has just 5,500 employees</a>, of whom 600 are temps. Its market cap was $345 billion on Aug. 2, or 14 Krogers. </p>
<p>Even Alphabet, the paradigmatic corporation of the 21st century, <a href="https://www.sec.gov/Archives/edgar/data/1652044/000165204418000007/goog10-kq42017.htm">has only 80,110 employees</a> around the globe. Notably, <a href="https://www.bloomberg.com/amp/news/articles/2018-07-25/inside-google-s-shadow-workforce">Bloomberg reports</a> that Google’s “temps, vendors and contractors” actually outnumber its permanent employees.</p>
<h2>Does Wall Street hate job creators?</h2>
<p>The seeming paradox of corporations being giant in one dimension and tiny in others can be resolved by examining what Wall Street values and what it disdains. </p>
<p>Specifically, it seems that <a href="https://www.amazon.com/Vanishing-American-Corporation-Navigating-Hazards/dp/1626562792">the stock market does not love job creators</a>, and if it is impossible to avoid having employees, Wall Street prefers that they not be paid well.</p>
<p>In other words, in the minds of those in business, there may be a built-in negative relation between market cap and employment.</p>
<p>Consider some examples. On Feb. 19, 2015, Walmart – America’s largest employer by far – announced that <a href="https://www.nytimes.com/2015/02/20/business/walmart-raising-wage-to-at-least-9-dollars.html">it would raise</a> the minimum hourly wage paid to its U.S. employees to $9, at an expected cost of $1 billion for the year. By the end of the day its market cap had dropped 3.2 percent, or over $8 billion.</p>
<p>And in April 2017, when American Airlines announced that <a href="http://www.latimes.com/business/la-fi-american-airlines-raises-20170427-story.html">it had negotiated raises</a> for its pilots and flight attendants, the market punished it with a 5.2 percent share price drop. Analysts explained their displeasure: “This is frustrating. Labor is being paid first again. Shareholders get leftovers.” <a href="https://www.vox.com/new-money/2017/4/29/15471634/american-airlines-raise">And</a>: “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups.”</p>
<p>Today’s corporate leaders have received Wall Street’s message and <a href="https://www.amazon.com/gp/product/0199691924">seek to stay as “lean” as possible.</a> Indeed, the median corporation to go public after 2000 <a href="https://www.brookings.edu/research/capital-markets-and-job-creation-in-the-21st-century/">had added just 51 jobs</a> globally by 2015, and these often came from acquisitions. When it comes to employment, evidently small is beautiful.</p>
<h2>The meaning of ‘big’</h2>
<p>How we think about corporate size matters.</p>
<p>Big is sometimes linked to better, particularly in business schools and executive suites. And cities and states pay millions and even billions of dollars to <a href="https://www.usatoday.com/story/tech/news/2018/04/30/could-we-waiting-not-winner-but-round-two-amazons-mulls-game-changing-decision-its-second-headquarte/554045002/">lure</a> “big” companies in hopes that they’ll bring jobs and economic growth – which <a href="https://www.citylab.com/life/2017/03/business-tax-incentives-waste/518754/">may not turn out to be true</a> for today’s megacompanies. </p>
<p>On the flip side, there are people like Teddy Roosevelt, <a href="https://obamawhitehouse.archives.gov/blog/2011/12/06/archives-president-teddy-roosevelts-new-nationalism-speech">who railed</a> against giant, powerful corporations, arguing that they led to greater inequality, a concentration of wealth and the corruption of politics. </p>
<p>Today we face similar problems: growing inequality, concentrated wealth and shadowy corporate money shaping our politics. But if we want to tame the giant corporations – as Roosevelt did – we need to have a clear sense of just what “giant” means. And we need to give up on the idea that corporations that are big in market cap necessarily create jobs.</p><img src="https://counter.theconversation.com/content/101225/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jerry Davis does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Apple became the world’s ‘biggest’ company because of its sky-high valuation. But in the past, the largest companies were known for more meaningful metrics such as revenue and number of employes.Jerry Davis, Professor of Management and Sociology, Ross School of Business, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/857122018-06-25T09:15:22Z2018-06-25T09:15:22ZShakespeare, DNA, and why car parks are a key part of British culture<figure><img src="https://images.theconversation.com/files/224449/original/file-20180622-26570-57ff.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/moscow-russiaapril-10-2018-multilevel-parking-1072251956?src=gbd070WJoullnDrZpjsiEA-2-88">OlegDoroshin / Shutterstock.com</a></span></figcaption></figure><p>A bevy of Shakespeare productions are currently taking place in a <a href="https://www.minsterfm.com/news/local/2597126/video---roof-goes-on-yorks-shakespeare-theatre/">pop-up Elizabethan-style amphitheatre</a> in York, England. Based on the Rose, a famous Elizabethan public playhouse in Southwark, London, and <a href="http://www.shakespearesrosetheatre.com/">named after it</a>, the construction sits in the York’s castle car park.</p>
<p>Indeed, car parks seem to be intersecting with English history quite a bit lately. Most famously, <a href="https://theconversation.com/uk/topics/richard-iii-4743">Richard III</a>’s skeleton was discovered underneath one in Leicester in 2013. It’s appropriate, then, that one of the first plays to be shown in York’s replica theatre will be Richard III, a tribute to the city’s infamous son and one that resonates in a slightly macabre way with the site of the 2013 discovery.</p>
<p>Performance Studies’ heavyweight, Richard Schechner, famously <a href="https://www.youtube.com/watch?v=SB6zTUfEODc">asserted</a> that while not everything is a performance, anything can be studied as a performance. This contention can be applied to car parks. It is hard to imagine a symbol of modernity more brutish than the architectural monstrosity of the multi-storey car park, with its layer upon layer of automated machines. The relentless appropriation and occupation of public space signalled by concrete car parks stand in stark opposition to the delicate skeletons, historical timbers and green landscapes that they have erased and replaced.</p>
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<h2>Car parks in history</h2>
<p>But of course, car parks are themselves subject to a history that they both influenced and propelled during the 20th century. The first multi-storey was built at Denman Street in London in 1901, and the company National Car Parks (NCP) was founded 30 years later by Colonel Frederick Lucas. </p>
<p>The remarkable rise of NCP was predicated on its regeneration of the derelict sites of post-war Britain, transforming bombsites into parking spaces in a way which helped to mould the revival of towns and cities, as well as their definition as centres of consumption. The role that NCP has played in shaping the consumerism of 21st-century British national identity means that there is a curious tension between the socialist overtones of the company’s name, and the extraordinary success of this private company, which <a href="https://www.ncp.co.uk/download/1719.9/">posted profits of £28m</a> in 2016.</p>
<p>While car parks seem to be a firm aspect of our present, they have sometimes also assisted in keeping the past alive. In Detroit, the former <a href="https://www.urbanghostsmedia.com/2011/04/michigan-theater-detroits-famous-renaissance-style-parking-garage/">Michigan Theatre</a> is often acknowledged as the most beautiful car park in the world, originally a French Renaissance-style venue established in 1926 that fell into decline alongside the city in the 1970s. </p>
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<img alt="" src="https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=598&fit=crop&dpr=1 600w, https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=598&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=598&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=752&fit=crop&dpr=1 754w, https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=752&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/224447/original/file-20180622-26552-uxnfcq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=752&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Michigan Theatre.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bobjagendorf/5124336314/">bobjagendorf/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
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<p>Its transformation into a garage means that drivers can still marvel at the theatre’s decaying glory when they visit Detroit. Park up and admire its great arched window, faded decorative ceiling, ruined remnants of carpets and curtains, the façade of its abandoned stage. Without the car park, all of the building’s languishing grandeur would be invisible. But the building has even more to offer history than first appears as, funnily enough, it was constructed on the site of the Edison Illuminating Company, where Henry Ford built his first car in 1896.</p>
<h2>DNA and Shakespeare’s Rose Theatre</h2>
<p>Car parks can therefore tell us something about our cultural genealogy – and increasingly, genealogy is a primary way that we conceptualise our connection to history. </p>
<p>The growth in popularity of websites offering saliva tests to determine your ethnic origins or TV programmes focusing on family lineage – whether the DNA tests of the Jeremy Kyle show or <a href="https://www.youtube.com/watch?v=MaMyFe6sPRg">the uncovering of Danny Dyer’s royal ancestry</a> in Who Do You Think You Are – attest to this. This is enough of a phenomenon that interdisciplinary researcher Jerome de Groot recently launched his <a href="http://projects.alc.manchester.ac.uk/double-helix-history/about/">Double Helix History</a> project, an investigation into the ways in which “DNA sequencing changes the way that people think about themselves and their relationship to the past”. </p>
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<p>It is telling how many times DNA also recurs in the language surrounding theatre and car parks. James Cundell, chief executive of Lunchbox Productions, who are producing the shows at Shakespeare’s Rose, claims an “<a href="https://www.minsterfm.com/news/local/2587400/rose-theatre-reveals-ancestral-link-to-shakespeares-first-folio/">ancestral link</a>”, for instance, with Shakespeare’s First Folio as a distant relative of one of its editors, Henry Condell. And in 2013, DNA proved crucial in confirming that the Leicester car park skeleton was in fact Richard of York, his identity authenticated through the <a href="https://theconversation.com/more-than-a-hunch-identifying-richard-iii-with-dna-11999">genetic testing of living relatives</a>.</p>
<p>Multi-storeys even exhibit what their architects call “double helixes” in the design of ramps, which mean that cars ascending the car park never converge with those on their descent.</p>
<h2>Car parks and future memory</h2>
<p>These ideas may seem provisional, coincidental, unconnected, comical even. But looking at car parks as a performance, their recurrence in recent history is intriguing. It is possible that in this new car park theatre, we’re witnessing the work of British collective memory in action and that, in the future, car parks will perform a quite different role in our history than they do at present. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/224451/original/file-20180622-26576-18sr3du.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A future site of cultural memory?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/port-glasgow-scotland-uk-june-12th-1114292465?src=8Dm9bX08Pfjz0e_S5Q1-Mw-2-11">TreasureGalore/Shutterstock</a></span>
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<p>The car park has already taken on an almost mythic status in the Richard III narrative for instance, irrevocably linking English history, and Shakespeare’s play, with this supremely modern invention. Elsewhere, de Groot has <a href="http://www.historytoday.com/jerome-de-groot/royal-oak">written about</a> how the object of the Royal Oak, in which Charles Stuart hid in 1651, has taken root in English cultural memory in surprising ways, manifesting in pubs, on coins, or the name of warships, becoming “a site of tourism and memory, something to be owned, a place to drink, something to spend”.</p>
<p>Is it completely unfeasible that the car park might perform history in the same way as the oak tree in time to come? Car parks, currently perceived as sites of modernity that must be dug up or covered over in order to access the “truth” of pre-modernity, may in time emerge as objects that are more delicately-intertwined with British memorial culture than they currently seem.</p><img src="https://counter.theconversation.com/content/85712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eleanor Rycroft does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Car parks seem to be intersecting with English history quite a bit lately.Eleanor Rycroft, Lecturer in Theatre and Performance, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/913612018-02-14T11:38:57Z2018-02-14T11:38:57ZAir pollution from industrial shutdowns and startups worse than thought<figure><img src="https://images.theconversation.com/files/205778/original/file-20180209-51727-143b9df.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Because of Hurricane Harvey, refineries and other facilities released 2,000 tons of pollutants. </span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Harvey/f41141f6fd8d408bbd0df0efbd82a860/16/0">AP Photo/LM Otero</a></span></figcaption></figure><p>When Hurricane Harvey struck the Texas coast in August 2017, many industrial facilities had to shut down their operations before the storm arrived and restart once rainfall and flooding had subsided. </p>
<p>These shutdowns and startups, as well as accidents caused by the hurricane, led to a significant release of air pollutants. Over a period of about two weeks, data we compiled from the Texas’ <a href="http://www2.tceq.texas.gov/oce/eer/">Air Emission Event Report Database</a> indicates these sites released 2,000 tons of sulfur dioxide, carbon monoxide, nitrogen oxides, volatile organic compounds and other pollutants.</p>
<p>These types of emissions that result from startups, shutdowns or malfunctions are often referred to as “excess” or “upset” emissions and are particularly pronounced during times of natural disasters, as was the case with Hurricane Harvey. </p>
<p>However, as we document in a <a href="http://doi.org/10.1021/acs.est.7b04887">newly published study</a> in the journal Environmental Science & Technology, they also occur regularly during the routine operation of many industrial facilities, sometimes in large quantities. And, even if unintended or unavoidable, the pollutants released during these events are in violation of the U.S. Clean Air Act (CAA). </p>
<p>With the EPA now revisiting the rules regarding these air toxics, our study shows how significant they are to public health – and how historically they have not been systematically tracked across the country or regulated comprehensively.</p>
<h2>Excess emissions in Texas</h2>
<p>Our study examines the occurrence of excess emissions in industrial facilities in Texas over the period from 2002 to 2016. We focused on Texas because, unlike nearly all other states, it has established comprehensive reporting requirements. The state collects data on so-called hazardous air pollutants that cause harm to people exposed to them, such as benzene, as well as substances called criteria pollutants, such as nitrogen oxides that contribute to the formation of ozone.</p>
<p>As a general rule, states set limits to industrial air emissions based on provisions in their State Implementation Plan (SIP), which is their strategy for meeting CAA requirements. The EPA in turn is responsible for ensuring that each state’s SIP is drafted in accordance with the CAA.</p>
<p>The CAA requires sources of air pollution to achieve continuous emissions reductions, which in essence means companies need to install and maintain equipment to limit the release of pollutants that happen during routine operations.</p>
<p>Excess emissions occur when pollution abatement systems, such as scrubbers, baghouses, or flares that curtail emissions before they are released, fail to fully operate as the result of an unexpected malfunction, startup or shutdown. That is, a facility fails to maintain continuous emissions reductions, thereby exceeding its permit limits. </p>
<p>Although one might assume that such occurrences are rare, we found that excess emissions in Texas are frequent, sometimes large, and likely result in significant health damages for individuals living in communities near where these emissions are released.</p>
<p>Specifically, there are four important takeaways from our study.</p>
<p>First, excess emissions represent a sizeable share of permitted (or routine) emissions. In the case of the natural gas liquids industry, excess emissions amounted to 77 thousand tons over the period 2004-2015, representing 58 percent of the industry’s routine emissions for that pollutant. Refineries emitted 23 thousand tons of excess emissions (10 percent of their routine emissions of SO2) while oil and gas fields released 11 thousand tons (17 percent of their routine emissions of SO2). </p>
<p><iframe id="x8dCi" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/x8dCi/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Second, the distribution of excess emissions is highly skewed. While thousands of excess emissions events occur every year in Texas, the top 5 percent of events release more pollutants than all the other events combined. In extreme cases, excess emissions events can release vast amounts of pollutants in a very short period of time. In 2003, a Total oil refinery in Port Arthur emitted 1,296 tons of sulfur dioxide within 56 hours, due to a power outage <a href="http://www2.tceq.texas.gov/oce/eer/index.cfm?fuseaction=main.getDetails&target=18657">caused by a lighting strike</a>. That was almost twice the amount of the total sulfur dioxide that refinery emitted that year from its routine operations.</p>
<p>Third, several industrial sectors account for a disproportionate amount of excess emissions. Facilities in just five sectors – natural gas liquids, refineries, industrial organic chemicals, electric services and oil and natural gas fields – emit about 80 percent of all excess emissions from industrial facilities in Texas. </p>
<p>Moreover, a few facilities within each sector are responsible for the vast majority of excess emissions. For example, the top six oil refineries are responsible for 70 percent and 77 percent of the excess emissions of sulfur dioxide and carbon monoxide, respectively, released from all 30 Texas refineries. </p>
<p>Finally, excess emissions have important health effects. Using a <a href="http://barney.ce.cmu.edu/%7Ejinhyok/easiur/">model that links pollution to mortality</a>, we estimate that the health damages attributable to excess emissions in Texas between 2004-2015 averaged US$150 million annually. These estimates are certainly not comprehensive as they only consider damages from premature mortality due to particulate matter (PM) emissions caused by the emission of sulfur dioxides and nitrogen oxides. </p>
<p>The model does not account for the direct damage from other pollutants or from nonfatal, acute health events such as asthma attacks. As such, our estimate can be considered a lower bound. </p>
<h2>Beyond Texas</h2>
<p>The data we analyzed in our study reveal the magnitude of the problem caused by excess emissions. Yet, it is important to remember that they only capture the situation in Texas. We know very little about excess emissions and their trends over time at the national level. That’s because Texas is one of just a few states (the others being Louisiana and Oklahoma) that systematically track and make public information on these type of pollution releases. </p>
<p>The Texas Commission on Environmental Quality (TCEQ) has gone as far as to implement a system that requires facilities to publicly report excess emissions events within 24 hours of their occurrence, information that the TCEQ then makes available <a href="https://www.tceq.texas.gov/airquality/emission-events">on its website</a>. </p>
<p>Although Texas is unique in its reporting requirements, excess emissions events are common elsewhere as the watchdog group the Environmental Integrity Project, has documented in a <a href="http://www.environmentalintegrity.org/pdf/publications/Report_Gaming_the_System_EIP.pdf">series</a> of <a href="https://environmentalintegrity.org/wp-content/uploads/Breakdowns-in-Air-Quality.pdf">reports</a>.</p>
<h2>Excess emissions are underregulated</h2>
<p>The EPA, after decades of leaving excess emissions outside of its regulatory focus, made a concerted effort to update its approach during the final years of the Obama Administration. </p>
<p>Prompted by a lawsuit brought by the Sierra Club, the EPA issued a State Implementation Plan (SIP) call in 2015, asking states to revisit the way they regulate excess emissions. The agency found that certain SIP provisions in 36 states were “<a href="https://www.federalregister.gov/documents/2015/06/12/2015-12905/state-implementation-plans-response-to-petition-for-rulemaking-restatement-and-update-of-epas-ssm">substantially inadequate</a> to meet Clean Air Act (CAA) requirements.” </p>
<p>This means that industrial facilities may have been regularly surpassing the limit of their permitted pollution limits, in part because of these excess emissions. But because of state agency exemption provisions, it could be the case that these facilities would not always be penalized. In other words, the EPA determined that many states had, as a matter of policy, often failed to treat excess emissions as violations and potentially shielded offending companies from paying fines. </p>
<p>The EPA is now revisiting its policy as part of the Trump administration’s broader efforts to scale back many of EPA regulations and decisions during the Obama era. Given the frequency, magnitude, and important adverse effects for public health, the EPA’s ultimate decision on how states should treat excess emissions is consequential. </p>
<p>In addition, much is still to be learned about the magnitude of the excess emissions problem across the country. If an effective regulatory framework is to be designed to reduce them, it is imperative that more states begin tracking excess emissions events in a detailed and systematic way, following the example set by Texas.</p><img src="https://counter.theconversation.com/content/91361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Konisky receives funding from the National Science Foundation and the Alfred P. Sloan Foundation.</span></em></p><p class="fine-print"><em><span>Alex J. Hollingsworth and Nikolaos Zirogiannis do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An analysis of air pollutants from Texas shows how significant – and largely underregulated – the category of ‘excess’ emissions is across the US.Nikolaos Zirogiannis, Assistant Scientist in School of Public and Environmental Affairs, Indiana UniversityAlex J. Hollingsworth, Assistant Professor in School of Public and Environmental Affairs, Indiana UniversityDavid Konisky, Associate Professor of Public and Environmental Affairs, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/784822017-06-08T06:07:43Z2017-06-08T06:07:43ZNo, palm oil is not responsible for 40% of global deforestation<figure><img src="https://images.theconversation.com/files/172478/original/file-20170606-3681-fug9vk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Forest of Gede Pangrango, Indonesia</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/cifor/12183824413"> Ricky Martin,CIFOR/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>A little over a month ago, Indonesia’s Environment and Forestry Ministry sought to <a href="http://jakartaglobe.id/business/ministry-seeks-extend-forest-moratorium-two-years/">extend a moratorium</a> on issuing new licenses for using forest and peatland in the country for two years.</p>
<p>Indonesia faces a massive ecological issue <a href="https://www.scientificamerican.com/article/deforestation-in-indonesia-is-double-the-government-s-official-rate/">as its forests are rapidly disappearing</a> and palm oil has been blamed for it. Indeed, the palm oil industry symbolises tensions between the urgent need to preserve natural spaces <a href="http://www.cifor.org/publications/pdf_files/Books/BLevang1401.pdf">and the necessary support</a> for economic development in the global South. </p>
<p>Palm is an exceptional oleaginous crop with an unequalled oil yield per hectare. It produces an abundant and inexpensive <a href="https://www.worldwildlife.org/pages/which-everyday-products-contain-palm-oil">multi-purpose oil</a>, which is sought by both the agro-food and biofuels industries. </p>
<p>When properly developed and managed, palm oil plantations can play an important role in improving livelihoods and eradicating poverty in the tropics’ rural areas. <a href="https://www.ifc.org/wps/wcm/connect/159dce004ea3bd0fb359f71dc0e8434d/WBG+Framework+and+IFC+Strategy_FINAL_FOR+WEB.pdf?MOD=AJPERES">The World Bank estimates</a> that with a population increase of 11.6% and a 5% increase in <em>per capita</em> consumption, an additional 28 million tonnes of vegetable oils will have to be produced annually by 2020.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/172477/original/file-20170606-3716-4siigz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Palm oil from Indonesia and Malaysia is an essential ingredient in Asian countries.</span>
<span class="attribution"><span class="source">Alain Rival</span></span>
</figcaption>
</figure>
<p>Global production of palm oil is now dominated by Indonesia and Malaysia, <a href="https://www.indonesia-investments.com/business/commodities/palm-oil/item166?">which together account for 85% of the world’s supply</a>. Consumption is driven by emerging economies, such as India, Indonesia and China, in which both population growth and rising living standards are key factors for the rising demand. <a href="https://www.cbi.eu/market-information/vegetable-oils/palm-oil/">European consumption</a> accounts for 15% of global palm oil use, while the US uses 3%.</p>
<h2>The deforestation question</h2>
<p><a href="http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2017-0098+0+DOC+XML+V0//EN&language=EN">The European Parliament</a> resolution of 4 April 2017 on palm oil and deforestation concluded a debate on the possibility of controlling palm oil imports with the specific aim of limiting deforestation in Southeast Asia.</p>
<p>The issue was addressed in an article published by the French newspaper <a href="http://www.lemonde.fr/planete/article/2017/04/03/les-ravages-de-la-culture-d-huile-de-palme-passes-au-crible-du-parlement-europeen_5104827_3244.html"><em>Le Monde</em> on April 3 2017</a>. Dealing with environmental damage related to palm oil production, the article claimed:</p>
<blockquote>
<p>The conversion of land to oil palm plantations alone is responsible for 40% of the loss of natural forest cover around the world.</p>
</blockquote>
<p>But exploring the source of this data shows that palm oil is actually responsible for only 2.3% of the world’s deforestation. How can this discrepancy be explained?</p>
<h2>Questioning numbers</h2>
<p>The <em>Le Monde</em> article is based on <a href="http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+REPORT+A8-2017-0066+0+DOC+XML+V0//EN">a March 2017 report</a> by the European Parliament on the social and environmental impacts of oil palm cultivation. Our team has carefully examined this 400-page paper, from which the 40% figure most probably originates. </p>
<p>It says that 40% of global deforestation is due to the shift to large-scale oil palm monoculture plantations and that 73% of the world’s deforestation results from land clearance carried out for the production of agricultural raw materials.</p>
<p>These are the same deforestation figures for world agriculture and for the oil palm sector, but this time taking into account all forms of agriculture, not just “intensive” or “industrial” agriculture. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/172479/original/file-20170606-3677-1ktmv8o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Choosing the right hybrid seed is crucial for sustainable production.</span>
<span class="attribution"><span class="source">Alain Rival</span></span>
</figcaption>
</figure>
<p>It is worth noting that smallholder farmers play a key role in global agricultural production: 95% of coffee, cocoa and rice production comes <a href="http://www.springer.com/us/book/9789401793575">from them</a>. In the palm oil sector, non-agro-industrial farms <a href="http://www.cifor.org/publications/pdf_files/WPapers/WP220Pacheco.pdf">account for about 40%</a> of the area and these also contribute to deforestation.</p>
<p>The data published in the European Parliament’s report are not all referenced. If the 73% figure is not connected to a source, the 40% figure is cited as originating from a <a href="http://ec.europa.eu/environment/forests/pdf/1.%20Report%20analysis%20of%20impact.pdf">2013 technical report</a> that follows a study commissioned by the European Commission, carried out by three private consultants.</p>
<p>It states that 239 million hectares of forests were cut down during the studied period, mostly in the tropics or subtropics: 91 million hectares in Latin America; 73 million in sub-Saharan Africa; 44 million in Southeast Asia.</p>
<p>Agriculture is therefore the leading cause of global deforestation, with 24% of the land used for livestock and 29% for crops. The report provides some details of the 29% chunk of deforestation due to agricultural crops, highlighting the crops with the highest contributions – soybean (19%), maize (11%), oil palm (8% %), rice (6%) and sugarcane (5%).</p>
<h2>Let’s recalculate</h2>
<p>According to these data sets, palm oil plantations account for only 8% of the deforestation attributed to agricultural crops. In total, this represents 8% of 29%, thus 2.3% or 5.6 million hectares from the 239 million hectares of forest lost between 1990 and 2008. </p>
<p>In order to find the 40% figure, we must look a little further in the technical report to where deforestation in Brazil and Indonesia is analysed. These are the two countries in which forest losses were reported to be the highest. </p>
<p>In just Indonesia, 25 million hectares of forest were lost, of which 7.5 million hectares were used for agricultural production. Of these 7.5 million hectares, 2.9 million correspond to oil palm plantations, about 40%. It is therefore responsible for 40% of deforestation – but only that caused by the agricultural sector and only in this one country, not the world.</p>
<h2>Why we need better information</h2>
<p>Our concern is that distorted information is able to directly shape public opinion. Reports such as the one by the European Parliament now guide public priorities in terms of regulation and policies, which is even more worrying.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/172480/original/file-20170606-3710-1o1zghw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Oil palm nurseries should come from certified material for successful ecological intensification of productivity.</span>
<span class="attribution"><span class="source">Alain Rival</span></span>
</figcaption>
</figure>
<p>The publication of the European Parliament report immediately provoked strong reactions <a href="http://www.kemlu.go.id/Documents/Joint%20Communique%20final.pdf">from Indonesia and Malaysia</a>, which denounced discriminatory and protectionist measures and <a href="http://www.reuters.com/article/us-indonesia-malaysia-eu-palmoil-idUSKBN17E094">announced economic retaliation</a> on imports from Europe that includes <a href="http://www.defenseworld.net/news/19347/Indonesia_To_Target_Airbus__Thales_If_EU_Cuts_Palm_Oil_Imports#.WTaUN-vyipo">wheat to airplanes</a>. </p>
<p>Faced with producing countries that will defend palm oil production at any cost – as it is regarded as a major vector for economic development and rural poverty eradication - the European Union must build a solid argument before designing policies that take all the established causes of deforestation into account.</p>
<h2>What the latest studies say</h2>
<p>As far as Indonesia is concerned, there are <a href="https://doi.org/10.1371/journal.pone.0159668">several published scientific studies</a> with more up-to-date data than the technical report commissioned by the European Commission. One of these, published <a href="http://www.nature.com/nclimate/journal/v4/n8/full/nclimate2277.html">in Nature Climate Change</a>, shows evidence that the loss of primary forests continued to accelerate in Indonesia (especially on Sumatra and Borneo islands) between 2000 and 2012 as rates jumped from 200,000 to 800,000 hectares a year.</p>
<p>Aimed at deciphering the causes of deforestation, <a href="http://www.nature.com/nclimate/journal/v4/n8/full/nclimate2277.html">another study</a> covering the period 2000 to 2010 highlights the industries responsible for deforestation in Indonesia: tree plantations for pulp (12.8%), forestry concessions (12.5%), industrial oil palm plantations (11%) and mining concessions (2.1%).</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/172481/original/file-20170606-3698-10cfy74.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Harvesting oil palm is still a manual operation globally.</span>
<span class="attribution"><span class="source">Alain Rival</span></span>
</figcaption>
</figure>
<p>The share attributable to palm oil was greater on the island of Borneo. Indeed, the most recent <a href="https://www.nature.com/articles/srep32017">review study</a> on the topic monitored forest losses over the past 40 years and found that, today, 7 million hectares of industrial plantations (for palm oil and pulp) are located in areas that were covered by primary forests in 1973.</p>
<p>This study stresses that links between industrial plantations and deforestation are not always direct. Only 25% of the deforestation occurring in Borneo corresponds to a direct conversion into plantations. </p>
<p>In other cases, forests are exploited for timber – either legally or illegally – and this weakens and exposes natural spaces to frequent fires. Deforested areas are not immediately or automatically regrown, and as a result, Indonesia alone harbours more than 50 million hectares of <a href="http://www.wri.org/blog/2010/07/degraded-land-sustainable-palm-oil-and-indonesia%E2%80%99s-future">degraded forest land</a>.</p>
<h2>The way forward</h2>
<p>Sustainable solutions call for joint actions in and with producing countries. Agro-industrial palm oil plantations have a real responsibility for deforestation although this is shared with other sectors of the Indonesian economy, such as <a href="http://np-net.pbworks.com/f/Wicke%2C+Faaij+et+al+%282008%29+Palm+oil+and+land+use+change+in+Indonesia+and+Malaysia%2C+Copernicus+Institute.pdf">pulp and paper, forestry and mining</a>.</p>
<p>The increase in the frequency of uncontrolled fires is also a major cause of the degradation of forests in Sumatra and Borneo. <a href="http://jakartaglobe.id/opinion/erik-meijaard-get-facts-right-indonesias-haze-problem">An official from the Borneo Futures NGO interviewed</a> in September 2015 by the Jakarta Globe, argued that the fight against forest fires remains ineffective because it does not consider the true causes. </p>
<p>Local communities and small farmers are the source of the majority of fires because they do not have the same means as agro-industries to get access to the land.</p>
<p>Defining credible and effective public policies for sustainable rural development involves diverse groups of stakeholders with often divergent interests. It requires both scientists and policy makers to work with accurate data, understood in the right context and taken from verifiable sources.</p><img src="https://counter.theconversation.com/content/78482/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Victor Baron has received funds from CIRAD, PalmElit et PT Smart tbk.</span></em></p><p class="fine-print"><em><span>Raphael Marichal receives funds from Cirad, ANR and PT Smart tbk.</span></em></p><p class="fine-print"><em><span>Alain Rival does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Agriculture and the pulp and paper industries, forestry and mining also contribute.Victor Baron, Chercheur en agronomie, CiradAlain Rival, Directeur régional pour l’Asie du Sud-Est insulaire, correspondant de la filière palmier à huile, CiradRaphael Marichal, Chercheur en agro-écologie, CiradLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/451402015-07-24T04:36:21Z2015-07-24T04:36:21ZGE’s return to its industrial roots offers hope US economy may do the same<figure><img src="https://images.theconversation.com/files/89567/original/image-20150723-22818-mvuunk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GE's shift away from finance may mean more focus on other products, such as jet engines. </span> <span class="attribution"><span class="source">Jet engine via www.shutterstock.com</span></span></figcaption></figure><p>General Electric <a href="http://www.ft.com/cms/s/0/09a19db2-e0bb-11e4-9f72-00144feab7de.html">is retreating</a> from the financial sector and returning to its industrial roots seven years after its finance unit nearly <a href="http://www.thestreet.com/story/11400179/1/thing-that-killed-lehman-and-almost-ge-popular-again.html">brought down</a> the company. </p>
<p>After Lehman Brothers’ collapse in September 2008, GE was saved only by the <a href="http://www.propublica.org/article/general-electric-tapped-fed-to-borrow-16-billion">largesse</a> of the federal government, borrowing billions through several different programs set up to fight the financial crisis. </p>
<p>The company’s shift, <a href="http://www.businessinsider.com/r-ge-close-to-selling-part-or-all-of-its-real-estate-holdings-wsj-2015-4">announced</a> in April, is a crucial development and is in part the result of the passage of the Dodd-Frank Act, which turned five years old this week.</p>
<p>GE, which <a href="https://www.ge.com/sites/default/files/ge_webcast_pressrelease_01232015_1.pdf">reported</a> revenues of almost US$150 billion from dishwashers, jet engines and other products last year, is an iconic American company and a bellwether of the economy. Its <a href="http://www.businessinsider.com/the-man-who-destroyed-ge-2009-3">embrace</a> of finance to boost stagnating profitability in the 1980s mirrored changes in the broader US economy. That shift triggered a host of socioeconomic problems such as increased inequality and almost caused the global economy to collapse in 2008.</p>
<p>GE’s retreat from finance might signal that the role of industrial companies in the US economy may once again be on the rise. Such a “de-financialization” could boost American innovation in more productive sectors – <a href="http://ser.oxfordjournals.org/content/early/2015/05/13/ser.mwv009.full.pdf?keytype=ref&ijkey=fIz9gDjv4ZzTEu7">especially</a> those in research and development (R&D) and capital-intensive industries – help reduce inequality, and make it less likely that the next financial crisis will snowball into an existential one. </p>
<h2>Seeking profits in finance</h2>
<p>Since the early 1980s, economic activity in the US has steadily moved away <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674050846">from manufacturing to more financially</a> oriented activities. </p>
<p>For example, the financial services sector <a href="https://www.aeaweb.org/articles.php?doi=10.1257/jep.27.2.3">contributed</a> 7.9% to US GDP in 2007, up from 4.9% in 1980. A major part of this development was the increasing dependency of nonfinancial corporations on financial activities and institutions. </p>
<p>For industrial companies whose profitability had begun to decline in the face of growing foreign competition, the turn to finance meant continued growth and profits, thanks in particular to high interest rates.</p>
<p>Nowhere was the turn to finance more visible than at GE under then-CEO Jack Welch. As a 1997 BusinessWeek article <a href="http://www.businessweek.com/1996/44/b34991.htm">noted</a>, “Welch barnstormed through GE shutting factories, paring payrolls and hacking mercilessly at its lackluster old-line units.” </p>
<p>By the time Welch’s tenure ended in 2001, finance accounted for more than half of GE’s revenue and more than a third of its profits.</p>
<p>Financialization rewarded GE. Stock prices grew immensely through the 1980s and 1990s, a good indicator that stock investors and analysts favored this transformation. A 1997 Fortune magazine article <a href="http://archive.fortune.com/magazines/fortune/fortune_archive/1997/11/10/233789/index.htm">noted</a> that GE Capital “powers GE’s earnings, drives its stock and scares the hell out of its competitors.”</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=441&fit=crop&dpr=1 600w, https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=441&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=441&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=554&fit=crop&dpr=1 754w, https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=554&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/89573/original/image-20150723-22849-e38prr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=554&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This chart shows the sharp rise in GE’s share price from 1980 to 2001.</span>
<span class="attribution"><span class="source">Yahoo Finance</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Financialization’s dark side</h2>
<p>For GE, the flaws in this transformation didn’t manifest themselves until 2008, when Lehman Brothers’ collapse caused a short-term credit crisis that nearly destroyed the company. But for the economy and its workers, the negative impacts began much earlier and were far-reaching. </p>
<p>To begin with, starting from the 1980s, it led to a much-changed conception of the firm in the business world. Firms began to be viewed as a bundle of tradeable assets that exist to return <a href="https://www.russellsage.org/sites/all/files/u4/Fligstein%20%26%20Shin_Shareholder%20Value%20and%20the%20Transformation%20%20of%20the%20American%20Economy.pdf">value to their shareholders</a>. Major corporations led by finance-oriented managers made the stock price their primary concern. </p>
<p>The linking of executive pay to stock options promoted this trend. The focus of CEOs and boards shifted away from long-term productive investments toward quick financial gains. The profitability of the companies that turned to finance increased, but employment and economic growth <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2284507">stagnated </a>in the largest nonfinancial firms, in part due to this development. </p>
<p>The bargaining power of labor also diminished. The focus on short-term profits gave firms incentive to cut labor costs, while rewarding top executives who made <a href="http://www.levyinstitute.org/pubs/wp_525.pdf">such decisions</a>. All in all, financialization led to shrinking net wages for many workers operating in the productive industries, and contributed to the widening income inequality <a href="http://www.jstor.org/stable/10.1086/669499">in the US</a> and <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2290720">across the advanced nations</a>. </p>
<h2>The prevailing paradigm shifts</h2>
<p>The 2008 economic crisis was essentially a crisis of a financialized economy run amok. The prevailing paradigm up until the crash was to let markets, including financial markets, self-regulate. </p>
<p>As Barney Frank would <a href="http://www.gpo.gov/fdsys/pkg/CHRG-110hhrg44900/html/CHRG-110hhrg44900.htm">recollect</a> later regarding his work on the House Financial Services Committee in the US Congress: </p>
<blockquote>
<p>When I was about to become the chairman of this committee in 2006, I was told by a range of people that our agenda should be that of further deregulating financial markets. I was told that excessive regulation was putting American investment companies and financial institutions at a disadvantage.</p>
</blockquote>
<p>The crisis disrupted this paradigm. Even Alan Greenspan, who had shepherded financial deregulation and promoted financialization during his 19-year term as chairman of the Federal Reserve, <a href="http://www.nytimes.com/2008/10/24/business/economy/24panel.html">admitted</a> that he had put too much faith in the self-correcting power of free markets.</p>
<p>The result of this change of heart was the <a href="https://www.sec.gov/about/laws/wallstreetreform-cpa.pdf">Dodd-Frank Wall Street Reform and Consumer Protection Act</a>, which President Barack Obama signed into law in July 2010. The act led to the establishment of the Financial Stability Oversight Council (FSOC) to detect and preclude excessive risks to the US economy arising from the distress of large, interconnected bank holding companies, or nonbank financial companies. </p>
<p>The council is authorized to designate companies whose financial failure could pose a threat to US financial stability as systemically important. Such companies will be subject to increased regulatory supervision by the Federal Reserve and other relevant prudential regulators. </p>
<p>So far, the council voted to designate American International Group, General Electric Capital, Prudential Financial and MetLife as systemically important. With their hundreds of billions of dollars invested in finance, these companies were believed to have a significant impact on the health of the financial sector and the overall economy. Or put another way, they were simply too big to fail.</p>
<h2>Dodd-Frank changes the game</h2>
<p>Although Dodd-Frank might not be the most effective piece of legislation one would hope for after a crisis of this size, it has clearly changed the playing field – certainly for GE. </p>
<p>GE Capital, which was once deemed the overall company’s most dynamic component, suddenly became its riskiest. GE’s stock price began to fall, reflecting the concern that investors and analysts had over the risk GE capital imposed. </p>
<p>In retreating from finance, GE’s leadership not only aims to relieve itself of the burden of being considered too big to fail and the extra regulatory scrutiny, but also hopes that the shareholders will give its stock a more favorable valuation.</p>
<p>Last week the company offered its first report card on the transition when it released second-quarter earnings, which showed better-than-expected revenue thanks to growth in its core industrials business. This <a href="http://www.nytimes.com/2015/07/18/business/ge-q2-earnings.html?_r=0">suggests</a> its plan to move away from finance is working. </p>
<p>GE <a href="http://www.wsj.com/articles/general-electric-results-top-expectations-1437129893">said</a> that it had already signed $68 billion worth of sales for its lending business, putting it on track to meet its $100 billion goal by the end of the year. GE Capital had about $500 billion in <a href="http://www.gecapital.com/en/our-company/company-overview.html">assets</a> at the end of 2014. </p>
<h2>There and back again</h2>
<p>GE’s journey from an industrial firm to a highly financialized one and back encapsulates some of the most critical elements of the transformation of American capitalism over the past few decades. </p>
<p>It is rather soon to tell whether GE’s retreat from finance is harbinger of a more structural and long-term transformation in the American economy. After all, the logic that seems to be driving the company’s retreat is the same logic that once drove it into finance: increasing its stock price. </p>
<p>Still, this development suggests that times are changing, however slowly, and Dodd-Frank deserves some credit for altering the incentives and calculations of the investment community. Let’s hope more companies join this trend.</p><img src="https://counter.theconversation.com/content/45140/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Basak Kus does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>GE’s push into finance nearly crippled the company, just as the broader US shift in that direction almost collapsed the global economy.Basak Kus, Assistant Professor of Sociology, Wesleyan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/420192015-05-20T05:07:01Z2015-05-20T05:07:01ZIf the government is serious about reviving British industry, here’s what needs to be done<figure><img src="https://images.theconversation.com/files/82234/original/image-20150519-30504-1drjz5f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What there's not enough of</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/35557179@N04/5880513820/in/photolist-9XDaTj-7TVry5-roaGcc-d3Q5sd-m6mBUD-dSNnBy-ebbnhP-pd7LR2-dHWhHS-9YA7Pw-rq7ejq-atm9be-dtQ5tG-8BwjQx-iSZkZ4-8xADSK-6E1JTF-eaw1rZ-qPWP23-wYxz1-ntPCzU-e6BEA9-c6uUj5-cvHhoY-jErFid-ecv7a2-8LTRuJ-qxVAWd-8bcD9Q-eez1PQ-qqvq19-sd18UU-aSgdQV-agFNak-nsSHTB-8Kz7CJ-duXJRd-dBuxeF-j6vVkw-9S6nVf-oUrecp-p8w2fo-kH5viB-bnpCXM-gPbi6M-pd6VWd-e6oTiG-87C6XP-jEs84E-dQRUh8">Nigel Butterfield</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The debate around the UK economy has been narrow, principally framed around austerity and cutting the government’s budget deficit. Other important economic issues have received much less attention, including the burgeoning <a href="https://notayesmanseconomics.wordpress.com/2015/04/09/how-long-can-the-uk-keep-running-its-balance-of-payments-deficit/">trade deficit</a>, improving our manufacturing capabilities and promoting green technologies. </p>
<p>Ditto tackling growing regional inequalities and rebalancing the economy. If we are to achieve balanced and sustainable growth, we have to address these issues. They are the route to eliminating the budget deficit and reducing the nation’s debts in the longer run.</p>
<p>Since the global financial crisis in 2008, of course, the UK has seen the <a href="http://touchstoneblog.org.uk/2015/01/the-slowest-recovery-in-modern-history-slows-down/">slowest recovery since</a> the 1930s. This has been punctuated with <a href="http://www.bbc.co.uk/news/business-32143552">low productivity</a> and the rising trade deficit, which at almost 6% of GDP is the highest since modern records began. Luckily for the Tories, as The Guardian’s Larry Elliott <a href="http://www.theguardian.com/business/2015/apr/09/uk-trade-deficits-used-to-matter-at-election-time-not-any-more">has pointed out</a>, the days when bad trade figures could influence the outcome of a general election (like in 1970) appear to have passed. </p>
<p>Yet as we saw clearly during the global financial crisis, the UK economy is unbalanced and fragile as a result. It remains over-reliant on sectors such as retail, financial services and construction, to the detriment of manufacturing. Hence there were calls after the crisis for rebalancing. </p>
<p>This was both about making the economy stronger and addressing concerns over competitiveness, globalisation, long term de-industrialisation and unemployment/under-employment. In a clear departure from the free-market model that has dominated economic policy since the late 1970s, a number of economic commentators and policy people began to push for this to be brought about through a more active state industrial policy. </p>
<p>Traditionally there has been a dichotomy in economic policy between old-style Keynesian approaches which aim to stimulate growth through fiscal measures such as government spending or tax cuts; and supply-side reformers who have tended to focus on reducing market rigidities, for example by making labour laws more flexible. </p>
<p>In contrast, industrial policy may not only create and sustain domestic employment (thus sustaining demand, via increased investment and consumption), but it can also raise domestic industrial capacity and capabilities (a supply-side measure) for future growth.</p>
<p>The recent industrial success of the BRIC countries and previously Japan, South Korea, Germany also suggest that an active state can play a positive role in facilitating economic growth. </p>
<h2>The UK record since 2010</h2>
<p>The debate has moved beyond the old narrow view that the state should only intervene in response to specific company or even sector failures. Now it’s seen more as being about creating the environment for sectors and regional clusters to prosper, creating successful stables from which winners can emerge. </p>
<p>Where once the state propped up the likes of British Leyland or the coal industry, now we think more in terms of generating new knowledge and innovation, coordinating the companies involved and investing in missing links within sectors. Within that, of course, the policy instruments available are wide-ranging. They encompass everything from support for new sectors to trade policies to foreign direct investment to intellectual property rights to the development of clusters and regions. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=445&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=445&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=445&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=559&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=559&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82229/original/image-20150519-30538-3wz835.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=559&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&searchterm=made%20in%20the%20UK&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=156219353">ducu59us</a></span>
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</figure>
<p>The coalition government’s record in relation to industrial policy has been mixed. George Osborne made <a href="https://www.gov.uk/government/news/2011-budget-britain-open-for-business">promising noises</a> in the early days about rebalancing the economy and a “march of the makers”, but unfortunately much of it looks to have been empty rhetoric. </p>
<p>The government <a href="http://www.telegraph.co.uk/news/politics/7823449/Coalition-announces-plans-to-abolish-Regional-Development-Agencies.html">did away with</a> the old regional development authoritiesand replaced them with the local enterprise partnerships. The intention of devolving more power to ground level was laudable, but they have not had sufficient funding and only a handful <a href="http://www.ncl.ac.uk/curds/assets/documents/wherenext.pdf">have been successful</a>. Many seem to be doing very little. They lack the regional scale to support wider development. </p>
<p>The government has been slow on addressing the problems that small businesses face in raising finance, largely because the banks are now much more risk-averse. These companies are crucial to industrial supply chains, so this is an area that requires attention. The government has also made no attempt to address the UK’s lax takeover rules, which unlike in other countries do very little to protect strategically important businesses from foreign predators. </p>
<p>On the positive side, the government did introduce a series of so-called <a href="https://www.catapult.org.uk/about-us-text">Catapults</a>. These are centres where businesses, engineers and scientists work together on late-stage research and development. The seven centres are each dedicated to different priority areas such as high-value manufacturing, transport systems and offshore renewables. They are about long-term sector development, so it is too early to judge them, but they look like the right sort of intervention. Equally encouraging has been the <a href="http://www.automotivecouncil.co.uk">Automotive Council</a>, which started under Labour and has developed into an effective body in coordinating and developing the industry. </p>
<h2>Next steps</h2>
<p>So where next under Cameron’s second administration? At first glance, new business secretary Sajid Javid’s instincts look <a href="http://www.theguardian.com/business/2015/may/18/conservative-party-cut-red-tape-business-sajid-javid">much more free-market</a> than his predecessor Vince Cable. But it has to be hoped that under his watch, the government looks again at the local enterprise partnerships and returns to development bodies that can intervene more widely.</p>
<p>It should also do something about UK takeover rules to put the country on a level playing field with many of its main competitors. And more broadly, there is now a strong case for UK industrial policy to be afforded an institutional status similar to both UK monetary and fiscal policies. At the very least, it should be the subject of regular strategic long-term reviews, in line with what the <a href="http://thewrightreport.net/report.html">Wright Review</a> suggested last year. By giving it that sort of priority, the new government would be sending out the kind of powerful message that British industry badly needs to hear.
</p><img src="https://counter.theconversation.com/content/42019/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David receives funding from the European Commission through the "Welfare, Wealth and Work for Europe" FP7 project. He has previously received ESRC funding, as well as funding through the EU INTERREG programme.</span></em></p><p class="fine-print"><em><span>Keith Cowling and Phil Tomlinson do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Since the heady talk of a “march of the makers” in 2011, UK industrial policy has been patchy at best. No wonder the trade deficit is at its widest ever.Phil Tomlinson, Associate Professor in Business Economics, University of BathDavid Bailey, Professor of Industry, Aston UniversityKeith Cowling, Professor of Economics, University of WarwickLicensed as Creative Commons – attribution, no derivatives.