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Allan Sayle's Comment

Column 9: 15 February 2006.

The energy race as a quality program battleground

In his January 2006 State of the Union speech, America’s President, Bush, declared Americans to be “addicted to oil” and set a laudable forward goal for the USA to become independent of Middle Eastern oil. Is it for real or is it a strategy aimed at something else?

From time to time, American presidents like to set a visionary goal designed to capture the imagination of their customers – the citizenry. In the early 1960s, John Fitzgerald Kennedy set the man on the moon goal; in the 1980s Ronald Reagan postulated the idea of a “Star Wars” weapon system, that never came to fruition but was probably a major factor in the downfall of the USSR and communism, which were unable to bear the cost of similar weaponry in a race with USA. While Mr. Bush’s idea may appear visionary, one suspects more prosaic, pragmatic reasons for its appearance.

The challenge

The overseas wars of USA in Iraq and Afghanistan are prohibitively expensive. In prosecuting these conflicts, while running substantial deficits, America runs a serious risk of joining a long history list of once great nations fallen through a combination of circumstances lucidly described in Paul Kennedy’s masterly work, "The Rise and Fall of the Great Powers." (Ref. 1.) America’s current account deficit is frighteningly large and, though many cite the trade deficit with China for its magnitude, the cost of importing oil, which is inexorably heading higher in price, is a substantial component. Though eventually America may be able to reduce its trade gap with China through exporting advanced products, services and Disney parks, it is hard to see how it could raise its exports to the Middle East if the current regional antipathy towards the USA continues. (And our Danish friends are now discovering what it can mean when an important section of the world community shuns one’s products, which extend beyond Lego, Lurpak and bacon.)

China has been globally securing future oil supplies through negotiated agreements with Iran, Africa, Kazakhstan etc. One might characterize its policies as being the peaceful pursuit of secure oil supplies rather than the military guarantee of them, which is far more costly, and impractical if one must deal also with sporadic acts of guerrilla warfare or civil infraction. After all, who could accuse a nation of unfair trading practices when it is merely using open global trade methods to obtain its energy supplies? All good capitalistic stuff especially if the international oil majors are involved somehow. (Yet, even that is changing as China develops its own indigenous major oil companies.)

Even though China enjoys a cost advantage through its abundant (presently) cheap labour supply, in matters of energy input costs it is as vulnerable as America in needing to buy supplies on the World market. (With four times the population, perhaps it is even more vulnerable. Its people naturally wish to become upwardly mobile and motorcars are evidence of wealth, regarding which ostentatious demonstration is no longer unacceptable in the Middle Kingdom.) Moreover, as the oil prices rise, the cost of transporting its exports to the USA and Europe will reduce its price advantage over locally made goods.

Who can reduce their national energy costs fastest and first will get an edge. That is America's challenge. If the 1960s were a space race, the 2000s are already an energy race.

The race is on

The energy race will be joined by all developed and emerged nations. It will be a fascinating spectacle. China, Russia and India enjoy legions of well-trained scientists and engineers and burgeoning R&D centres. America, Japan and Western Europe possess no particular advantage over them regardless of what their political leaders may claim. So, this race will be fiercer than the Kennedy space race. Notably so for America, which already lags somewhat in alternative energy technology, such as solar power, hybrid vehicles and fuel cells, and in applying it, as in windmills, which are common throughout Germany, for example.

Since every major firm possessing the financial power to lead the fuel cell or solar power developments also has trans-global presence and supply chains, one doubts any one nation will be regarded as the winner or dominant in any single product line. What will be important for an individual nation is to secure a piece of the supply chain pie. Comparative advantage will be at work and the world will be better for it. Education holds the key to whatever advantage an individual nation might possess and it is America's Achilles heel.

As for the quality professional, the opportunities that the energy race will spawn are many and fabulous. They were outlined in my keynote address to the ASQ’s Audit Division Conference, March 2005. And in my address to the ASQ’s Houston Section, November 2004, my thoughts were presented about this incipient cornucopia. Mr. Bush’s recent speeches (about energy independence and the revival of nuclear power etc.) gratifyingly show they were accurate.

We are all (closet) environmentalists now

(Excuse that parody of former President Nixon’s famous remark.) Evidence abounds that global warming is real. It must be so for Britain’s Anthony Blair, once known as “Bambi”, has signed on to the need for action.

America has been much criticized for its apparent rejection of the Kyoto Treaty, a refusal justified by President Bush claiming it would damage the US economy. However, if we carefully his Damascus Road revelation, that America is “addicted to oil”, we soon appreciate he has tacitly, nay, stealthily, signed on. Latter day hierophancy or clever political slight of hand - maybe - but that is irrelevant. As the late Deng Xiaoping might say, black cat white cat who cares as long as it catches the vermin of energy wastage?

But first: get a cat. Better still: get lots of them. And there are plenty of them in a nation’s organizations: they are called - employees.

Ask not what your country can do for you…

Whatever nation you work in, you can play your part through your organization quality program focusing on energy reduction and its management. Look inside that organization and ask: how much of the energy we use or cause to be used is an avoidable cost? That is, plan and perform an energy audit.

(The basics of energy audits and energy usage matters are described in the 2nd and 3rd editions of Management Audits – Ref 2. - and I may enlarge further in a later article as space precludes a more thorough outline at present.)

Employees’ mindset must change now. A good quality program can help. As people in the daily workplace learn about energy management and see the magnitude in avoidable cost reduction, they may take the lesson home. Of course, it may be the other way round as they grapple with rising personal energy costs. Individuals must fight on both fronts: personal and business.

Leadership by example?

While applauding George Bush’s stated goal, one might muse if he intends leading by example in his born again energy Gnosticism. Will he reduce the amount he flies around in a presidential jumbo jet that apparently consumes some $6000 per hour in fuel, or place a windmill or solar panel atop the White House, or reduce the number of government SUVs, or mandate the lower setting of thermostats in government buildings or recycle the hot air constantly exuding from “Washington”? And in the UK, will PM. Anthony take similar action to reduce the burden on the taxpayer caused by government entropy? Or will that be something for George Brown, his Chancellor of the Exchequer and supposed (soon to be) successor who understands how taxes are caused and raised?

Will it be a case of By George! or by George? There’s nothing like setting a goal for others to achieve. Its called leadership (and politics)!


1. Kennedy Paul, The Rise and Fall of the Great Powers, 1987, Random House.
2. Sayle, Allan J., Management Audits, ISBN 0951173901.

© 2006 Allan Sayle Associates. All rights reserved.

Web: www.sayle.com
Email: Publish@SaferPak.com



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